Welcome back to The Daily Mastermind everyone. I'm super excited to be able to share some information with you here today. I hope you're having a great week. Today what I wanted to do, even though there's only a couple of weeks left in the year, I want to share with you a private webinar that we did with Scott Estill, who's one of our partners and friends. He was the former senior trial attorney for the IRS and we did a specific webinar for some of our high net worth clients specifically on how they could plan for year-end taxes and upcoming taxes given the changes that could be happening in the tax law with a new administration so I want to be able to go through this with you it's sponsored by a webinar that we had with protect wealth Academy which is the longest-running asset protection group in the country and it's by Scott Estill. So it's a little bit longer than normal but I hope you'll enjoy it. I definitely know it will give you some amazing content to be able to use for your tax planning. Hope you enjoy. With no further ado then let's get into 2020 and 2021 tax planning and where I like to begin here is to get organized and if you're not organized now you need to get to be organized so whether that is you know I'm you're gonna have to do it before tax day anyways whenever that may be the sooner you get organized the better as far as that goes and education is going to be absolutely critical so understanding the new tax laws how all of this is going to play in to your own situation whether that is business or personal and so like the third bullet point here the third check mark i guess is to review the 2019 tax returns personal business and what i like to look for here is is there any difference really between 2020 and 2019 is there anything that is is significant um that has happened to you whether it's personal whether it's business did you close down a business did you open a business did you buy rental property to just sell rental property? Are you buying stocks and bonds and mutual funds and whatever ETFs or whatever it is that you may be trading? Are you buying and selling that where any of these things are going to potentially have a big impact? So for instance, if you look at your 2019 return and you see that you had an adjusted gross income of, let's say, 200,000 and you look at 2020 and you're way over that or way under that, that may make a very big difference for your rest of the year tax planning. For instance, if your tax is just, and I'll go through this in several slides here, but if your taxes happen to be lower in, let's say, 2019, than they're going to be in 2020. And then 21, we may want to look at ways that we can shift income around. Sometimes we can do that, sometimes we can't. And then I think the last bullet point here, the life events, has anything significantly changed in your life that is going to potentially necessitate a change, let's say, on your taxes? So these life events that I have, So I was going over this, not necessarily in this particular order that what I would be, I guess, advising you to get married, retire, get a divorce, have some kids and then die. But anyways, what, you know, anything big that's happened here in addition to, you know, any of the business or personal other types of expenses. So, excuse me, other types of changes. The one thing that none of us really know though right now is what's going to be the changes as far as the law goes. And I want to take us back four years. So four years ago when I was doing this presentation, this would have been sometime in December of 16, I would have had to have come up with some ideas as to what's going to happen now that the Republican Party controls the House, the Senate, and the presidency. And obviously, we have a difference today, four years later, where we have a Democratic House, a Democratic president, but we don't know what's going to happen in the Senate. But in what I would call pretty much perfect conditions to get a tax bill passed, look at what happened here with the Republican Party in 2017. When Trump gets elected and then inaugurated in January of 2017, immediately different committees try to get some bills together. They try to figure out what should be in the tax bill, what shouldn't be, how much is it going to cost, who's going to pay for it. All of these different things had to come into play. And then in July, we finally get some sort of a reconciliation. And then in October, we finally get some sort of laws that are attempting to be passed. Different bills are being passed, different versions of the bill. And as you can see, we go right down to the very end of the year before this law can get passed, and it doesn't become effective until January of 18. Now, the reason I'm showing you this is that in really a pretty perfect political environment for the Republican Party in 17, it took them all year and a pretty tight vote, as you can see, very tight in the House and only passed by a couple votes in the Senate. But it took all year to make this law effective. So what's going to happen now? Who knows? But I think a couple things are possible. One is that even if the Democratic Party wins both of the seats in Georgia, I'm not sure you're going to see this kind of big sweeping tax legislation that we saw with the Republican Party back four years ago. Of course, that's a prediction of mine, although certainly you're going to see more tax legislation than if there's a split between the Republicans and Democrats in the different parts of Congress. So the Democrats control the House and the Republicans control the Senate, for instance. so that being said i do think that we're going to see another cares act i did look about a half hour ago to see if anything new came down and it does not look like um the any sort of stimulus checks are going to be going out this year and it was just kind of an interesting point because the democratic party wanted a 1200 stimulus check round two to go out and a lot of the republican senators wanted nothing. And so what Trump did is he bridged the difference there and said, okay, let's make $600 and we'll just get something passed. And what happened? Well, apparently the Republican senators are saying, no, that's too much. And the Democratic senators are saying, no, that's not enough. So if anything gets passed at all, it'll probably be smaller and on the business side and realizing though that the original CARES Act passed overwhelmingly back in March. In fact, it passed unanimously 96 to nothing in the Senate. So what do we do with personal tax planning for this year and next? Well, again, we're going to review our tax law changes with the CARES Act. We're definitely going to get some tax changes next year. Whether these will be similar to the CARES Act, which will be more bipartisan, or whether they will be more in the vein of different Democratic proposals that are going to get passed, either with some Republican support or without, depending again on the Senate. So changes to tax brackets, timing issues, I think are going to be key. So, again, let's look at some of the things that I want you to be aware of before we get into some of the planning. First thing, let's make sure that we've got enough estimated tax payments made this year so we don't get any penalties. So let's review the 19 return like I suggested. Anyways, let's compare it to 2020. Have you made enough payments in to make sure you don't get penalized? Now, excuse me here, as far as the estimated payments go, again, if your tax liability is going to be about the same as last year, just make sure that your payments are about the same, but I really hate to see anybody get hit with a tax penalty for any reason. Other things that I like to see you take a look at before the end of the year, these use it or lose it types of accounts, these flex spending accounts. And I've got the over-the-counter here highlighted in 2020 because that's a change for this year. And so the CARES Act has permitted all of these flex spending accounts or these medical reimbursement accounts that in the past could do these co-pays, could get you different eyeglasses or vision or contacts or dental exams, that sort of thing. All of this stuff now includes over-the-counter meds. So if you've got some in your account that you've got to use it or lose it before the end of the year, or if maybe your plan allows a 10-week extension, but one way or the other, don't lose this. And the same thing, too, if you've got a medical reimbursement plan, Section 105 plan, a lot of these different plans, make sure that you take full advantage of them before the end of the year. One other thing that I want to look at is the gifting issue. And the gifting issue, this comes up all the time. I get questions about this at the end of the year. Should I make a gift? Should I not make a gift? Why should I make a gift? Why should I not? What are the pros and cons? And I think this year is going to be a little bit more complicated than most. And the reason I say that is that in 2021, I think that there could be some changes to both the gift tax issues and the estate tax issues. And again, I don't have a crystal ball. I don't know who's going to be in the Senate. I don't know what the votes are going to look like in that, but I see that there could be some changes here. And so if you're looking at gifting, I think the first thing you want to look at is 2020. You still have a couple weeks here in the year to be able to make an up to a $15,000 per person per year gift without any reporting. okay so the big issue then is can I make a gift that's less than that of course so if you want to make a $2,000 gift or 1,000 or 10,000 all of that is fine none of it has to be reported now understand with a gift a person who makes the gift does not get a tax deduction and the person who receives the gift does not pay any tax on the gift and so it's a basically a tax-neutral event now if you want to you can give a lot more than $15,000 per person per year for instance somebody could give me let's say a hundred and fifteen thousand dollars right now the fifteen thousand dollars would be excluded, but there would be a gift tax return that would have to get filed on the excess, that extra $100,000. So at that point, obviously, we would have to do some tax planning and state planning and see if that's really something that we want to do. But again, giving up to $15,000 per person per year is a tax neutral event with no tax reporting, meaning that the IRS doesn't find out about it. So if you want to, anybody on this call tonight wants to send me a $15,000 check, you can do it, right? Put gift on it. You do not have to be related to the person that's receiving the gift. So, you know, again, it's something that anybody can do from an estate planning perspective. Now, here's our issue is that we don't know what the future exemptions are going to be the future gift tax rules and regulations we don't know what they're going to be really beginning sometime in 2021 and so at this point if we really want to we could make a gift at the same time for 20 and for 21 so you could in theory make a gift let's say you want it again going back to being very charitable towards me here, you could make me a gift on December 31st of 2020 for $15,000 and on January 1st of 2021 for $15,000, right? Two separate checks, two separate gifts on the memo line, one for 2020, the other for 21. And within the period of, you know, in theory, you could do that, you know, a couple of days apart, right? And be able to accomplish the full year of making the gifts for both 20 and 21. One of the other benefits beside removing that asset from an estate is that it removes the appreciation on that asset from the estate as well. And let me show you where I think some of the problems may come in here. And that is that we don't know what the estate tax exemption or the exclusion is going to be in the future. And we really don't know what that's going to be potentially beginning in 2021. And so there are ways that we can use these annual gifts to not only do estate planning, but we can do some current tax planning as well by doing this. So, you know, what are we looking at? Well there is a possibility that there will be an inheritance tax in the future So while some states have this where not that not only does there are potential state acts tax issue so for instance if I pass away and I have 20 million dollars of assets there is going to be an estate tax return that's going to be due and probably an estate tax on that but anybody who inherits the property from me will not pay any tax so So there's no inheritance tax, at least at the federal level. And that's being looked at right now as a possibility. Other possibilities, elimination of the step up in basis on the receipt of assets through a will or an inheritance. So, for instance, today, if I have an asset that, let's say I paid $100,000 for and it's now worth a million dollars, if I sell it, I'm going to pay tax on the $900,000. thousand dollars of gains but if I don't sell it and now I die and you inherit it you get a step up in basis to the million dollars and therefore we pay no tax and then the other possibility is that this estate tax exemption this exclusion whatever you want to call it could be lowered in the future so here's what I'm looking at I went ahead I bought ABC incorporated for a grand you know about a decade ago, it's now worth $11,000. I sell the stock, I'm going to pay tax on the capital gains of 10 grand. And this can be anywhere from 15% to 20%. You can have another 3.8% Obamacare tax put in there. You can have state income taxes. And so, yeah, 2,000, 2,500, it can be a lot more as well. So, for instance, somebody in our lucky state of California could be paying as much as $3,710 on that capital gain. Folks, you know, some of my brothers and sisters in New York could be paying up to almost $3,300 on that. And so if we can look at a way to perhaps get that to be taxed at a lower rate or perhaps at a 0% bracket, why don't we look at being able to do that? So we gift this stock. Let's say I gift this to one of my daughters who's in the 0% bracket for capital gains. she can now sell it, pay zero tax on the sale of the stock and save ourselves, the family here, you know, $2,000, $2,500. I live in California. I make a lot of money, $3,700 of tax, whatever it may be. Now, I've got a little note at the bottom there. The kiddie tax rules may apply, meaning that if they're a minor child or you're supporting them in college, we've got some planning to do. But let's say that you have a child that's not in college anymore. So they're out on their own doing what they're doing basically as far as working, but they're not making that much money. So what are we looking at here? Well, if we have a single taxpayer and that person, as I'm sort of circling this right now, is earning up to a $40,400 amount next year. And we can double that, if you look down at the bottom right here, to this $80,800. If we can keep our income under these amounts, we can pay nothing as far as capital gains taxes go. And that's something that, again, the IRS doesn't go out of the way really to tell you about this stuff, right? I mean, you're going to pay 15%, you're going to pay 20%, you're going to pay 23%, 23.8, you're going to pay all these different rates, but you never hear anybody tell you that it's possible, depending on who this person is, and not only children, but what if it goes the other way? What if you have parents or grandparents who may be receiving Social Security income, and that's it, or a very limited amount of income. Gifting upwards in the food chain to the parents or grandparents can make a lot of sense as well. Okay, so just a couple of thoughts there, but here's our problem with the estate tax exemptions. So we know $11.58 million this year, $11.7 million next year. We know that those are going to be what the, you know, what the rules are as far as that goes. Our problem, though, is what about this and this? The reason we have this 2026 rules, we have a sunset provision. And so if the estate tax rules are not changed, they're going to go back to where they were in 2017 index for inflation. But the big issue here is what happens if in 2022 or in 2023, these amounts are lowered considerably? Now you've got a lot of different assets in your estate that and perhaps with inflation. Is there anybody here tonight that's on this call with me that thinks that we're going to have inflation in the near future? Or am I the only one that thinks that all the printing of the money in the last five years or so is going to come back to haunt us at some point? And so now we could be looking at an estate tax exemption in 2022 or 2023 that's three and a half million, where now we have a really big gain in the stock market or maybe assets are being inflated just through whatever the inflation rate happens to be. And now all of a sudden, our asset is considerably more, or assets, I guess I meant to say, are considerably more than this exclusion. And at that point, too, we have no real way to do anything about it. And so today we do. So if gifting is in your plans, let's get it done today. Okay, we can't do this retroactively. You can't find out in February of 2021 that you should have made a gift in December of 2020 and undo it. That's not going to work out. All right. Moving on, I want to take a look at retirement planning. And this is something that we still can do something about for 2020. First thing is required minimum distributions. These have changed in the past from age 70 and a half to age 72 for this year. And so we had this change come up. And then the CARES Act came in that said, look, you don't even have to take a required minimum distribution at all for this year. You can if you want to, but you're not required to. So why would you want to? Well, if you don't have to and you've got plenty of other income where you're already going to pay a fair amount of tax, then obviously let's not take a distribution from your IRA because we don't want to pay more tax on it. But what about if you are not paying much tax already in 2020? Or maybe you expect in the future in 21 or 22 that your tax brackets are going to increase or the tax rates in general are going to increase. Maybe you want to take a distribution in 2020, even though you're not required to, just so that you can end up with paying a lower amount of tax. So, for instance, if you're going to take a distribution, it's going to be taxed at 15%, let's say, rather than having it taxed at 25% next year, you may want to consider that, even though, again, you're not required to. So, I think, you know, we have to look at the retirement plans, not only on when you take in the distributions, but how are you going to get to the place where you can take these distributions? What kind of retirement plans, contributions, what have you, can you do today? Well, first of all, we need to look at the fact that the contribution to a retirement plan may be currently tax deductible. So you're going to get the benefits of a current tax deduction with the secondary and probably, in my opinion at least, more beneficial tax deferred growth. you can do this right now. So if you haven't set up an IRA, if you haven't set up a 401k, if you haven't set up a SEP plan, which is basically another type of IRA for businesses, simplified employee pension, you can do that right now. And you can contribute the maximum in the next couple weeks to cover the entire year. So what are we looking at here? Well, I think the first thing is let's take a look at what some of these are here. So for 2020 here, you can put in this $19,500 into the 401k. And basically by combining that with the employer match, you come up with the same amount that you can put in to the SEP or a maximum of 20% of your salary. And these numbers go up a little bit next year. Most of them stay the same, a couple of them go up. But the benefit here is that let's say that you've paid yourself a hundred thousand dollars salary this year and you haven't done anything. You know, as far as a retirement plan goes, you could set up a set plan right now and put in up to 20% of your salary. So you could fund it with a $20,000 contribution. You could fund it with a thousand dollar contribution. The 20% is a maximum amount, but it's not the amount that you have to put in. You're not required to put that in. But by putting it in, what are you doing? Let's say that you can only put $1,000 into this and you put that grand in. You are going to get a current year, 2020, tax deduction for that $1,000. And when you put that money in, whatever that $1,000 grows to, let's say that over the period of the next 30 years, it grows to $10,000. You will have never paid taxes on the $9,000 of appreciation that that $1,000 investment actually did. That was the performance. So again, this is something that you can decide how much you want to contribute or not up to the maximum. You can contribute nothing this year and contribute the max next year. So it's totally discretionary as to what you do here. But again, you have to know that these options are available. All right. As far as the contribution dates go, the 401k, we have to get that done by the end of the year if we want it to be valid for 2020. If we make the contributions next year in 2021, they're going to be applicable only for 2021. The SEP plan is where we have a difference. And this is a really big opportunity because we can make a contribution for 2020 sometime in 2021, including the due date, excuse me, including extensions of the due date for the filing and get this deduction. This is really the only legitimate retroactive tax planning move you can make. So, yes, we can establish this IRA up to tax day and fund it for 2020. We can do the same for a SEP plan. So, again, if it's something that you're not sure if you can fund it or when you can fund it, you can set the SEP plan up now or any time up to the due date of the return, including extensions, and fund it for 2020. Now, of course, from a financial standpoint, I recommend doing this sooner rather than later, because the sooner you do it, the sooner you can get the tax deferred growth. Or if you do it in a Roth IRA, it meaning any sort of trading or investing, you can get the benefits of it much quicker. So for instance, I end up trading a lot of options that I use with with my COBOLS program, I do that in an IRA. And so the sooner I can get the money into the IRA, the more capital I have then to trade. And if I'm making a real nice return, all of those profits are staying right in the IRA. And so I'm not paying tax on them until I decide when I'm going to take the distribution. And certainly that's the case for this year when we don't have the required minimum distributions. A couple of other big changes I want to mention here real quick. 401k loans. When we started this year, $50,000 was the maximum 401k loan, and you had five years to repay it. This has been doubled to $100,000 with one extra year to repay it. I don't know what 2021 is going to be here. It could very easily go back to $50,000, which at this point it will. So if you're looking at a 401k loan, this is something you may want to look at now before the end of the year, because you can borrow up to 100% of the account if it's less than 100k. And if it's more than 100k, you can borrow up to the 100,000. And so this may give you some options here to be able to take a loan out, downside meaning that, of course, you don't have that money in the account, but you're going to pay yourself back with interest. So, again, one possibility as far as if you need cash may not be a bad way to take it from a tax perspective. Roth IRA conversions, we have to do this by the end of the year. But what we can do here is we can take advantage of any lower tax brackets that we may be in today to benefit us in the future by never really having to pay tax on any of the income that that investment generates So my example before let say that I take in my SEP IRA I start trading options with that. And at some point, then let's say I double it. The $10,000 in a Roth IRA is never going to be taxed. And so when I pull that out 20 years, 30 years from now, I'm not going to be taxed on any of it. Whereas in a traditional IRA, I will. And so converting it may make sense. It is a taxable event, but something that you may want to look at. And you can do this over a period of years. And so if you have an IRA that's worth, let's say, a half a million dollars, if you take that whole half million into a Roth conversion this year, you're going to get a really big income tax hit. But what if you converted $50,000 over the next 10 years? You can spread out the tax hit and you can do some planning there, depending on, again, what tax law changes are happening, I guess, in the future. Other retirement plan distributions over age 59 and a half, we can consider taking a distribution from a retirement plan, even though, again, not required. We can look at Roth conversions as well. The thought here would be that we may want to take this out now if we have a lower tax rate, either because we think our income is going to go up in the future, or maybe we think that the tax brackets are going to change and the rates are going to go up in the future, or maybe a combo of both, that you're going to make more money in the future and the rates are going to be higher to begin with. So that's something, again, take a look at this. Maybe it's something that we want to do, maybe not. But if we're under age 59 and a half, be aware that normally there's a 10% penalty on any early distributions. Now, this has been waived in 2020 if you take out the distribution because of a COVID-related reason. So if you've got this retirement plan distribution up to a maximum of $100,000, you're not going to get hit with a 10% penalty. And that's retroactive, one of the rare times that you'll see a retroactive tax change back to the beginning of this year. So, you know, if I'm 50 years old and I take out $100,000 from my IRA, in the past, I would get nailed with a 10% penalty. This year, I'm only going to get hit with the income tax on it. And if we want to, as this next slide is going to show us, if we receive a distribution like this, we can, but we're not required to, but we can pay it back. Why would we want to do this? Well, number one, it eliminates the taxes that are due. And the second part is that it gets the money back into the IRA, and thus you can get the benefits of the tax deferral. Without a repayment, you've now got a choice between either having the entire distribution taxed in 2020, or there's a provision that lets you split it between 2020, 2021, and 22. So you could split the taxes really over the next three years by splitting the income up. Or you can pay it back and not pay the taxes at all. So up to you on this one. But be aware, you've got this possibility. You've got these ways that you can take money out of your IRA and your 401k and do it in a tax efficient way. Now, I'm not saying it's a wise move or that you should do it. Just know that 2020 is probably the best year I've seen in a long time for being able to get distributions out of retirement accounts with the very, very minimal amount of penalties at all or tax consequences. Okay, let's look at some capital gains and loss issues here. We may want to look at harvesting losses from investments to soak up some of the taxable gains. I do want to mention just real quick the 30-day wash sale. And what that says is that if you sell a stock or bond or security or option or whatever it happens to be at a loss, you cannot buy that same or substantially identical security within 30 days of the loss or you lose the loss. And so you can wait 30 days and on day 31 or 32, repurchase it, or you can buy something that's pretty similar, but is not exactly the same. So for instance, maybe you sell an ETF at a loss and then you buy a very similar ETF, an ETF meaning an exchange traded fund, that's going to give you a very similar investment so you can book the loss and not have to worry about the wash sales. The wash sale rule, though, does not apply if there's a gain. And so this gives us an opportunity if we're in a lower tax bracket right now. So let's say that, again, we're in this low tax bracket of a 0%, or maybe we're in a 10% or 12%, excuse me, a 15% bracket. And so therefore, we may want to sell the stocks today, pay nothing in capital gains or a 15% rate if we're in a different tax bracket, knowing then that we can go out and buy the exact same stock the minute after we sell it and not have to worry about any adverse tax consequences. The reason that we would consider doing this, and again, I'll put this slide up because I think it's important for you to see it, that, again, the 0% tax rates here, whoops, excuse me, I went through that when I wasn't supposed to, but our 0% tax rate, again, up to this $80,000 of income, $80,800 of taxable income. and this is not adjusted gross income. So maybe you look at this and I'm married, my spouse is not working this year, my income's been $50,000 and I've got some gains in the stock market. I can go ahead and sell all of my stock or let's say up to maybe 30 grand of it and not pay any tax. Or let's say that I'm in the 15% tax bracket today and I'm expecting my income to go up quite a bit. So maybe I take the tax hit at 15% rather than taking a chance on paying it at 20% plus this 3.8% tax. And again, we don't know where the tax brackets are going to be as far as capital gains in the future. This slide shows us where it's going to be at the beginning of 21, where I think it's going to be for all of 21, but I'm not exactly sure. Okay. I can't promise that. So higher tax brackets, we may want to look at some of the gains. If we're going to be in a higher bracket in the future, sell some winning stocks now, maybe reset the basis, maybe harvest some losses, something that we can try to maximize the tax advantages of buying and selling any securities, any investments. I put the qualified opportunity zones up here still. And the reason I did it is because this is something that Biden supports and he wants to expand. And so if you're in a situation where you have big capital gains and the sales of maybe the investments occurred in December, I want you to look at the possibility of eliminating or deferring these capital gains into 21. And again, I've done entire webinars on the QOZs, as they're called, the Qualified Opportunity Zones. But it is something to consider if you find yourself in a position where you've got a big tax liability, their capital gains, and now we may be able to go 180 days out, in other words, sometime into 21, and make this investment to delay or reduce some of the capital gains. All right. As far as the tax planning goes, and some of the bunching of expenses goes that I'm going to talk about here, the real key numbers are going to be in the standard deduction amounts. And so if I'm, let's say I'm married and I'm filing a joint return, For this year, 2020, if my itemized deductions are less than this $24,800, if they're less than that, I'm going to take the standard deduction. If they're more than that, I'm going to itemize. And so when I'm talking about bunching expenses, if you're right around the threshold, let's say you're right around $24,000, $25,000, you may consider moving a bunch of expenses up and itemizing in one year and then in the next year taking the standard deduction. So again, that's what I'm talking about when I'm talking about bunching deductions, and there'll be several slides on this. One other change with the CARES Act here, this $300 charitable contribution at the bottom, that's another extra deduction. So this $12,400 could be $12,700. My understanding of this was that the $300 would be doubled for married couples. And I found out yesterday that the IRS doesn't agree with me on that one. So it's going to be $300 per return, according to the IRS, which again, I disagree with, but that's what the IRS is saying. So don't forget that extra little $300 deduction. Other changes for this year, the highlighted yellow part says that you can pay no income tax this year if that's what you want to do by deducting your charitable contributions up to all of your adjusted gross income. So you can bunch deductions there where, again, maybe you bunch everything this year or next year, but we don't know what 2021 is going to bring. So maybe a bunch of everything in 2020, take these deductions and then push it out to 21. Go either way on that one, obviously. Same thing with medical expenses, maybe some state and property taxes. Who knows as far as what that law change is going to be. But for those of you who are not aware of it, On the personal side, any of your state and local income taxes, along with these property taxes, are capped at a total of $10,000. And this is something where I can see the law changing. Biden has proposed to eliminate this cap. And if that's the case, I am planning on waiting until January of 21 to pay any personal taxes. So if I've got, let's say, my home residence or a personal state of Colorado estimated tax payment, I'm going to make those payments in January of 21 and not in December of 20. So that if the cap is removed, I'm going to get the full deduction. If the cap isn't removed, I'm not at anything really because I've already over that 10 grand this year and will be next year either way. So something to think about as far as the plan goes. Again, final bunching one here, mortgage interest, do you want to prepay your interest in January, excuse me, in December for the January payment? Same thing with margin interest. So again, we're looking at ways that we can maybe make a double payment on the mortgage or delay it if we can so that the interest then gets double counted for January. So look at different ways that you can time some of these deductions, some of the income associated with it. Because again, lots of us are in our own businesses. So somebody like myself, I can look at this and say, bullet point three, cash salaries or bonuses. Do I want to accelerate this into 2020? Because I think that tax rates are going to go up, or I think that my income is going to go up, or maybe I want to sit back and go, well, you know, I've got a lot of income this year. Maybe I'll just push it back and defer it into 21. And if I've got my own business, I may have the ability to do this. Okay. A couple of other mentions on the capital gains here before I move on to some of the business issues that I want to look at, the harvesting losses and gains. I get a lot of questions over the years about the $3,000 capital loss. That is over and above any capital gains. And so if you have a million dollars of capital gains, and if you have more than a million dollars of losses you could zero out all of the losses or excuse me all of the gains and then up to a three thousand dollar loss to use against wages or dividends or other types of income so again this is something where you may want to look at selling some different investments in 2020 booking the gains or the losses and being able then to take the tax advantages of whatever that plan happens to be. Also looking at any worthless debts or worthless securities. Did you invest in an Enron type of situation? Did you make a private loan to somebody that went bad in 2020 that you have no hope of collecting? Look at any of the bad things that happen financially during the year. Is there a way that you can take these bad things and turn them into something advantageous from a tax perspective? And again you know you don want to have the situation of having capital losses but if you have them you best know how to use them Same things I look at with the business planning the business side of it timing issues with income and expenses. So in a quote unquote normal year where we kind of know what the law is this year and hopefully we know it next year, which unfortunately we don't. but in 2020 we have higher income than what we expect next year at that point we want to look at potentially deferring our billing and bringing expenses into 2020 so if you're going to buy a computer you're going to buy an suv and you're going to do it in the next couple of months why not do it this year the next of course if we expect the income to go higher next year and this year, we want to flip that around. Let's try to associate the expenses with the higher year's income. And if it's the same expect in both years, let's just push out the income and bring forward the expenses. Now, again, that's all depending on where you think you're going to be next year. So you need to know where you are this year to be able to make informed choices on that. I don't know what the tax law is going to be, but I think that there's going to be higher tax rates coming in 21 or 22. And let's say that I'm wrong here. I hope I'm wrong here, but let's say I'm wrong. Some of the planning that we would be doing in anticipation of higher tax rates isn't going to be a problem. But let's say that I'm right, that there are higher tax rates in 21 or 22, whether that's business, personal, or maybe both. Now, the stuff that you could have done in the next couple of weeks and perhaps in the first quarter of 21, you no longer have that opportunity. So if you agree with me that there's a good chance that tax rates are going up in 21 or 22, then you want to look at the business timing issues and tax it at the corporate level or at the personal level. I don't know what the rates are going to be. Current C-Corp rate, 21%. Under the current Biden proposal, that would go to 28%. I see that coming out at around 25%. But either way, it's a tax increase on a C-Corp. Other business issues for this year, for 2020, make sure you're aware of the credits, the employee retention credit, any sort of payroll tax credits, any types of paid sick leave credits. These are all tax credits that we can get per employee. So $5,000 per employee to retain the credit. Maybe the employee was out sick, or we can get this $511 per day credit. Maybe the employee was caring for a child, a sick child or something due to COVID. Same thing, we can get a $200 per day tax credit. And these things all apply for the whole year of 2020. We also have the ability to allow you to defer the employer's share of the 941 taxes, the Social Security taxes, or if you're self-employed, the self-employment tax. And it allows you to get this money back, basically, in the sense of you don't have to pay it to the government. And if you qualify for some of the credits, you can actually get a refund. Just be aware though that some of these tax credits can impact any of the payroll protection loans or any of these other types of loans that you may have gotten or qualified for under the CARES Act. So again, it all needs to be coordinated. Also needs to be coordinated with your C-Corp because if you have a C-Corp this year, you have the opportunity to carry the loss back five years. And this is not a law on 21. So what does this mean? Well, let's say that you had a big income in 2017. If you have no more income in 2020 and you can produce a loss, we defer the income out, accelerate expenses. Now we can carry that 2020 loss back to 2017 and get a refund of the taxes paid. So this is not something you have to do, but again, it gives you an opportunity to go back here to, let's say, 16 and 17 and 18 and look at those returns for a C corporation and see maybe this is something that you really want to do, that it is going to be beneficial. Again, you're not required to do it. Maybe you had losses in the past, maybe you had limited income in the past. You want to use any of the losses to go forward in the future because you're going to make more money or you think tax rates are going to go up. So again, lots of reasons why you may not carry it back, but just be aware that for 2020, you have this opportunity that I don't think you're going to have in 21. All right. A couple of other last business points here that I want to mention, I get asked about paying your kids all the time. The fourth bullet point applies to any employee, including yourself. Any pay has to be reasonable based upon time, effort, age, and abilities. So if I'm working as an attorney and let's say an average attorney in my area would make $100,000 and I pay myself $10 million, I better show that my time, effort, age, and abilities justify that salary. Or likewise, I'm paying myself $1,000 a year to work 40 hours a week. So again, make sure it's reasonable. If I'm an IRS auditor and you're paying your kids, and I'm going to take a look at it. I want to make sure, are the kids really working? was it reasonable so you know in this example was it reasonable to pay your kids ten dollars an hour and twelve dollars an hour do we have time sheets to show what they did you know that we're not trying to deduct an allowance or we're not making making gifts to them and then trying to get tax deductions but there's real big tax benefits here for the family this intra-family planning comes in real nice as you can see we can we can say 4300 to 6300 on this little this little hypothetical and again looking at accelerating expenses the depreciation issues here bonus depreciation is not going to change I don't see any of these issues changing this one the hundred percent or this section 179 this million dollars and fifty thousand I don't see those changing next year so even if there's big tax changes I think that these particular deductions are going to stay because they they stimulate the economy they encourage economic output by getting encouraging businesses and getting them to spend money so I think we're pretty safe here I wouldn't encourage you to accelerate this necessarily to get the 179 deduction I think we're going to get that pretty much either way this year or next as far as some of the deductions go though the SALT deduction that I mentioned does not apply for businesses or real estate investors so the prepay and the taxes it may help you as far as you know increasing a loss or reducing income or whatever your your strategy may be but again, the $10,000 cap doesn't apply to businesses. The businesses that I do think that we want to take a look at are going to be the C-Corp versus the flow-through entity. So this qualified business income, this whole big QBI thing, I've done an entire webinar on this as well. And this maximum 20% tax deduction, there's lots of talk about this changing under the Biden administration. And what Biden is proposing here is to cap this 20% deduction on income up to $400,000. And so if you have an income more than that, you may want to try to accelerate some of this QBI, this qualified business income into 2020. So if we have a situation where we have an S-Corp or an LLC, we may want to look at ways to bring it into 2020 for the possibility that maybe our income is going to be high next year and we're going to lose this 20% deduction. And that's a huge deduction as you can probably figure. $100,000 profit, it, $20,000 deduction, meaning I only pay tax on 80 grand, and I saved myself $6,000, $7,000 in tax. So some real big possible changes coming up, and these are, I think, things you want to consider. A few tax tips now to kind of end the presentation as far as the businesses go. Definitely consider your entity structure. Maybe you need a C-corp. Maybe you don't. Maybe you need a flow-through entity to get that QBI. So look at your tax structure. Look at your asset protection structure. Look at your estate plan. And look at all of these in light of potential tax changes. So we want to be flexible. We want to be able to jump into something next year if changes happen. Remember that most of the time, the tax changes are not retroactive. and if there's a real big tax change next year, a real big plan, kind of like the Republican changes that happened in 17, I would think that those big changes would go into effect January of 22. Doesn't mean I'm right, just means that that's what I would be predicting. Timing options, obviously, depreciation issues as well. Do we want to look at timing in the sense of Tax rates are going to go up in 2022, which again, I think they will. So we may want to delay the business expenses and or accelerate income. So again, this is going to be up to you. Depreciation timing as well. Do we want to bring forward our qualified business income? Do we want to take more wages? because part of the Biden plan would be that there would be a social security tax on wages in excess of 400 grand. So maybe we take higher wages in 2020 than we would in 21 or 22, assuming again that they qualify as reasonable. And so let me kind of leave you here with the baker's dozen of end of the year tax planning that I want you to consider. And I know there's a lot of questions. Unfortunately, I can't be taking the questions tonight because I do have a pre-engagement here with some family and a call coming up here in about 15, 10, 15 minutes. Also want to apologize for any of you that are watching this with my green screen behind me. I am aware that it is a green screen with nothing on it. So hopefully next time, Kendall and I are going to work that out so we can have, I don't know, some really cool pictures behind me. But notwithstanding that, let's look at then my dirty dozen plus one of the end of the year tax planning. Let's look at our 2019 return. let's figure out where we are in 2020 and let's make sure that we got enough paid in let's make sure we don't lose any of our flex accounts let's make sure that if we're gonna make any gifts that we make them this year this is something that we can't do retroactively so I don't even want to see you trying to make gifts at the end of January and backdating checks or doing anything like that we're not gonna backdate documents for any any reason and certainly not on the gifts or backdating expenses or whatever. So let's make the gifts if we're going to. Let's understand our required minimum distributions if we happen to be over age 72 and a half. If you're under that age, it doesn't apply to you no matter what the rules are. Funding a retirement plan and then also knowing what to do with that retirement plan. Should we make Roth conversions? Should we take a loan out of our 401k? Should we take a distribution from our IRA? And if so, should we pay it back? And when? And what tax bracket? So a lot of things come into play on the retirement side because the government, and again, remember the CARES Act, 96 to 0 in the Senate. So you don't typically see that kind of bipartisan legislation. And the same thing with what I think is going to be CARES Act 2 coming up next year. So keep in mind, these changes are coming about with the CARES Act, and we want to be able to be flexible there. We want to be flexible with our QBI, and we want to look at wages, whether it's paying ourselves, whether it's paying employees, high income wages, paying our kids, whatever it happens to be. We want to make sure that we get the benefit of the tax deductions. many many many more webinars and things that are going to be coming from experts just like just like Scott so I hope that's been some great information for you today share it with a friend once again this is George Wright III and this has been the Daily Mastermind have a great day
