6 – 18 Income Tax Strategies
Christian Financial Perspectives
English - October 23, 2018 00:15 - 43 minutes - 59.2 MB - ★★★★★ - 11 ratingsInvesting Business Education Homepage Download Apple Podcasts Google Podcasts Overcast Castro Pocket Casts RSS feed
In this episode of Christian Financial Perspectives, Bob and Mary Jo discuss “18 Income Tax Strategies for 2018” that may help lower your income taxes. They also supply a variety of Bible verses supporting paying your taxes, as well as verses on finance in general.
Click below to listen to Episode 6 – 18 Income Tax Strategies for 2018
18 Income Tax Strategies for 2018
Learn about “18 Income Tax Strategies for 2018” that may help lower your income taxes.
Taxes are a subject that most of us don’t find exciting or interesting, but it is an extremely crucial topic. It is important to fully understand taxes, how they work, and how to implement strategies on legally lowering taxes.
In this episode of Christian Financial Perspectives, Bob and Mary Jo discuss “18 Income Tax Strategies for 2018” that may help lower your income taxes. They also supply a variety of Bible verses supporting paying your taxes, as well as verses on finance in general.
If you are interested in learning more about income tax strategies, including getting a copy of “18 Income Tax Strategies for 2018”, please contact the office of Christian Financial Advisors at [email protected] or by calling (830) 609-6986.
HOSTED BY: Bob Barber, CWS® and Mary Jo Lyons, CFP®
Mentioned In This Episode
Christian Financial Advisors
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Bob Barber, CWS®, CKA®
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Mary Jo Lyons, CFP®, CKA®
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EPISODE TRANSCRIPT
[INTRODUCTION]
Bob: Welcome to Christian Financial Perspectives, a podcast where we talk about ways to integrate your faith with your finances. This is Bob Barber.
Mary Jo: And I’m Mary Jo Lyons.
Bob: Are you ready to learn how to apply biblical wisdom to everyday financial decisions?
Mary Jo: Join us as we look at integrating your faith with your finances. If it’s your first time listening, welcome to our podcast, and if you’re a returning listener, welcome back.
[EPISODE]
Bob:
Hosea 4:6, “My people are destroyed from lack of knowledge.” Well guess what, today we are going to talk about something so exciting. I know all of you are going to get revved up about it. Taxes. Yeah. We’re going to talk about tax strategies, “18 Tax Strategies For 2018”. Isn’t this exciting, Mary Jo?
Mary Jo:
I think you might be overstating it just a little, but that’s just me. Some of our listeners out there, they may be all revved up about taxes. Before we get too far into it, it’s important for us to say we are not tax advisors and you should consult your own tax professionals for your own specific advice and that what we are providing today is really meant for just educational purposes only.
Bob:
And we’ve got so many great resources too. During our podcast, if you can go to CISwealth.com or Christianfinancialpodcast.com. So many different ways to find us or you can even call us if it’s during business hours at the office and we can email out this resource to you, these 18 strategies that we’re going to be sharing. Cause there’s a lot of strategies, there’s a lot of meat to today and we’re going to try to make it as exciting as possible because I know that taxes sometimes can be boring, but then again, if you owe a lot in taxes, it’s not going to be boring. And you know Mary Jo, more than anything today, I think that’s going to be exciting for people if they’ll stay with us, today could result in a value of $500, $1,000, maybe even several thousand dollars in tax savings. Wouldn’t you say?
Mary Jo:
Absolutely, and you know there have been some changes that are important to note, but one of the other things we have available as a resource is a reference guide, so we’re going to be going over some specific numbers that are changing this year, and if you want to get a handout specifically to the tax reference guide for 2018 just give us a call and we’ll be happy to send that out to you.
Bob:
And the number that you can call, we try to make this easy for you because we know it’s a podcast we know you may be listening while you’re driving. Just remember 877-71-TRUTH. T, R U, T, H. Now a lot of people go, okay, What does that spell? It’s (877) 718-7884. Feel free to call us. Anybody here can get that out to you. You can go through our website, drop us an email, and we’ll be glad to get that out for you. Mary Jo, you have some good scriptures here I think that are important to share because this is Christian Financial Perspectives. As a Christian, it’s so important that we do pay our taxes.
Mary Jo:
Absolutely. Romans 13:6-7 is about obeying and submitting to the authorities. “Pay your taxes too for these same reasons, for government workers need to be paid. They are serving God in what they do. Give to everyone what you owe them, pay your taxes and government fees to those who collect them and give respect and honor to those who are in authority.” And you know Bob, I think that definitely speaks to why we pay taxes and that really is to set up the infrastructure of our communities, our states, and our country, and we take advantage of those, and so we should pay our fair share. But at the same time there are ways, legal ways, for us to minimize what we pay. And the more we minimize taxes that are paid out, the more we can do God’s work, wouldn’t you say?
Bob:
I do. Absolutely, but we want to be paying taxes fairly and we would never, on Christian Financial Perspectives especially, never ever say take money under the table where you don’t have to pay taxes because that’s in the face of scripture. Exodus 20 – we’ve got the 10 commandments and the eighth and nine commandments are “You shall not steal” and “You shall not lie”. That’s Exodus 20:15-16. This is so important when we talk about taxes that we pay our taxes, we pay them fairly, and that we are giving to Caesar what is Caesar’s. I noticed you have another scripture in here and I remembered when Jesus was talking about that and he had that coin. Why don’t you share that from Mark 12.
Mary Jo:
“Teacher, they said, we know how honest you are. You are impartial and don’t play favorites. You teach the way of God truthfully. Now tell us, is it right to pay taxes to Caesar or not? Should we pay them or shouldn’t we? Jesus saw through their hypocrisy and said, why are you trying to trap me? Show me a Roman coin and I’ll tell you. When they handed it to him, he asked whose picture and title are stamped on it? Caesar’s, they replied. Well then, Jesus said, give to Caesar what belongs to Caesar and give to God what belongs to God.”
Bob:
Isn’t taxes God’s provision? And I’ve heard people say, well, my taxes are just too high. Well, that’s God’s provision, so don’t complain about paying taxes.
Mary Jo:
No, maybe we shouldn’t complain, but we want to keep it at a reasonable rate.
Bob:
Yeah, exactly. You’re right about that. Before we get into the “18 Strategies for 2018”, there are some new tax laws from the tax cuts and jobs act of 2017, and we’ve just listed a few of these. Mary Jo, I’m going to let you go into some of those.
Mary Jo:
We’re not going to go too deep into this, but we definitely want to talk about what’s changing on the standard deduction. People used to itemize deductions and that may not be as easy as it once was, but it’s certainly there, but you might have to get a little bit more creative. If you are single, the standard deduction has gone from $6,350 to $12,000; married filing jointly it’s gone from $12,700 in 2017 to $24,000 in 2018; and your home mortgage interest deduction, that’s had some changes too. You’re able to deduct any existing mortgages, but if you’re taking out a new mortgage, you won’t be able to deduct that interest if it’s over $750,000. For most of us, that’s probably not a problem,
Bob:
But the giving has really changed from the perspective of the old standard deduction was $12,700 and the new one is $24,000 married filing jointly. So, if you don’t have a lot of other itemized deductions like home mortgage interest and just miscellaneous deductions that are going to total up to be over $24,000, then you may not get to deduct any of what you give away unless it’s over $24,000. So we’ll get into some strategies later about doubling up your giving in one year so it can be a deduction.
Mary Jo:
The other thing that I think is worth mentioning in 2018 are casualty losses, so I know due to Hurricane Harvey that not everybody had their insurance settlements by the end of 2017. ,2018 taxes are certainly still at play when it comes to you deducting those losses, but it has to be on a federally declared disaster, which Harvey was. I know that a lot of our listeners were impacted by Harvey in and around the Texas coast and we want to make sure that they are looking into that. We did talk about the fact that there have been a lot of changes in 2017 and we are not tax experts so that they do need to seek out their counsel from a CPA.
Bob:
Did you share the one about the home property taxes this year? I don’t remember hearing that one.
Mary Jo:
No, I didn’t. Go ahead.
Bob:
Okay, because that’s another one that’s interesting. Well here in Texas, and of course we have our podcast listeners all over the world, but in Texas we have pretty high school taxes and we don’t have an income tax here in Texas. So home property taxes can be really high. Let’s say if you have a $550-$600,000 home, those property taxes can be as high as $12,000 a year. The most you’re going to get to deduct now is $10,000. So, if you have $12,000 in home property, the most you’re going to get to deduct is 10k.
Mary Jo:
And that’s another big change. You know, Bob, there was another scripture that just kind of leads me to thinking about as we move forward, and that is the money for the sacred tent from Exodus 30:12 -16, “Whenever you take a census of the people of Israel, each man who is counted must pay a ransom for himself to the Lord, then no plague will strike the people as you count them. Each person who is counted must give a small piece of silver as a sacred offering to the Lord. This payment is half a shekel based on the sanctuary shekel, which equals 20 gerahs. All who have reached their 20th birthday must give this sacred offering to the Lord. When this offering is given to the Lord to purify your lives, making you right with him, the rich must not give more than their specified amount, and the poor must not give less. Receive this ransom money from the Israelites and use it for the care of the tabernacle. It will bring the Israelites to the Lord’s attention and it will purify your lives.” And you know, one thing I did notice, throughout the Bible, there are lots of references to tithing, but also to offerings made, whether it be with crops or with animals that are giving up as a way of like paying a toll almost. And so some of those are representative of the tax system, but there’s a lot of veiled references throughout the Bible on taxes. So I think it’s safe to assume that it is something we should expect to pay.
Bob:
So you’re saying taxes have been around as long as the Bible’s been around, which is for thousands and thousands of years.
Mary Jo:
Exactly right. And you know, Bob, another thing I did want to share is that we have talked about taxes, and taxes should be planned on throughout the year. It’s not just something to look at in April before the 15th of April when the tax filing deadline is upon us. But it’s something to be talking about and planning throughout the year. And one of the things I would encourage if you haven’t heard proactively from your CPA, that you might want to be proactive in contacting them to ask specific questions about what you should be planning for. Not all accountants will reach out to you, but I would encourage our listeners to find out what they need to change, what they need to plan on, and be giving thought to it before the end of the year, way before the end of the year to make sure they don’t miss any key deadlines.
Bob:
And we’re just a couple of months left at the end of the year. So, these strategies that we’re going to give you can be used a lot here at the end of the year. You can consider some of them year end tax strategies, but these are ongoing strategies as well. Mary Jo, are you ready to get into the 18 of them?
Mary Jo:
I am. The first strategy brings us to define contribution plans, and I think for most of listeners this impacts them in one way or another, but from a defined contribution plan, those are tax deferred accounts that you actually make a contribution to yourself. These could be your individual retirement accounts, your 401k’s at work or 403b’s. If you work for a nonprofit, this could be a SEP IRA, which is unique to people that are self employed and Simple IRAs. Again, for the self employed or small business owners primarily,
Bob:
And the contribution levels are different on all of these different types of plans. But remember, like Mary Jo just said, these are defined contribution plans. So, if ever you hear that term “defined contribution plan”, just think of an IRA. If you have a 401k, a 403b, like she said, if you’re a small employer, SEP IRA’s are really, I think, best Mary Jo for those that are just a one or two man shop.
Mary Jo:
Yes.
Bob:
And a Simple IRA is really good for somebody, say, less than 25 employees. The individual IRA limits are $5,500 per person or $6,500 per person if you’re over 50. Now remember, this can double if you’re married. So, this could be $11,000 per couple or $13,000 because 6,500 x 2 for the couple if you’re both above 50.
Mary Jo:
That’s one thing that’s good about getting older.
Bob:
You get to contribute more to your IRA. Now the thing about these IRAs though is that depending on your income level, they start phasing out or you can still contribute to an IRA and it be a tax deduction.
Mary Jo:
That’s exactly right. Those phase outs are: if you’re married filing jointly, your modified adjusted gross income is between $101,000-$121,000; above that, you phase it out. For single or head of household, it’s between $63,000-$73,000; and married filing jointly, it is $189,000-$199,000
Bob:
We said married filing jointly twice in here, so I don’t want to confuse anyone. That second time we said married filing jointly, that’s the phase out limit per spouse who is not a participant in a qualified plan. If you’re not participating in a 401k or a 403b, limits are much higher. You heard Mary Jo say at the beginning $101-121,000 then you heard her say $189-199,000. I don’t expect any of you, as you’re listening to this podcast, to get all these numbers. These are so many different numbers and this is why we emphasize that you meet with a qualified financial advisor, work with a CPA that will let you know what amounts can go into these individual IRAs, if any, if you’re maxing out a 401k or 403b or say a Simple IRA plan.
Mary Jo:
While we’re talking about the IRAs and the company plans and you mentioned if your spouse is participating in a plan, this is something I want to be sure that we share. I really want to encourage those non-working spouses. Even if your spouse is contributing to a company sponsor plan, you are working for the family company and you should contribute to your own individual retirement account even if you can’t deduct it. There are options that are out there for you, but everybody should be funding something for their own retirement, and that includes a stay at home spouse.
Bob:
I am totally in agreement with you there. Now, the nice thing is as we talk about these plans and get a little bit deeper, like we mentioned with a individual IRA, it’s $5,500 per person under 50 or $6,500 per person over 50. That’s the IRA, but as we get into the 401k’s and the 403b’s and the SEP IRA’s, those contributions increase dramatically. They increase all the way up to $18,500 per person. If you’re over 50, you add another $6,000 to that. So yes, you are hearing me correctly today that you can contribute into your 401k up to $24,500 if you’re over 50. When you talk about your employer match, depending on how much they’re matching you, you can go all the way up to $55,000. Now, think about so many, Mary Jo, that are listening today to our podcast. They’re not putting much in their 401k’s at all. For some, it may be a lot, but let’s say you’re putting $5,000 a year in, but you could be putting $10,000 a year in, and your effective tax bracket, let’s say, is 20%. So, you can put an additional $5,000 or even $10,000 into your 401k right there. You’ve saved a thousand, maybe a couple thousand, dollars on your taxes.
Mary Jo:
So, your contributions are reducing your taxable take home pay. So right there, that’s a tax savings to you. And a lot of people put in what the company is matching, but they don’t think about maxing out and they should pay themselves first. That tax break is better than any other kind of source of savings, if you will. Even if you don’t have the best investment options available in your 401k, there’s something there that will work for you. So, I really encourage people to continue to max out those. And if they can’t do it all at once, do it in increments. Like pay yourself another thousand every pay raise or at every annual review. Make sure you’re upping your contribution until you’re maxing out.
Bob:
We have a couple of months left before the end of the year. This is where I’ve actually helped dramatically some of our clients here at Christian Financial Advisors where we’ve looked at what they’ve added, and they have enough in savings to nearly – they could live the rest of the year without a paycheck for the last month or two – and they’ll take their entire check those last couple of months and put that into their 401k which results in thousands of dollars in tax savings.
Mary Jo:
And you know, Bob, we also talked a little bit about SEP IRA’s and these are again ideal for self employed individuals or those small companies with just one or two employees. In there, you can contribute 25% of your compensation or up to $55,000 because you are the employer, so the contribution is coming from the employer.
Bob:
The one thing about SEPs that I want the employer to know, let’s say you have five employees and you’re contributing for yourself that compensation up to 25%. if you contribute to your plan, you’ve got to do that same thing for those other two or three employees that you may have. So if their salary is say $50,000 and you’re going to put 25%, you’ve got to put $12,500 in their SEP IRA. With some small employers, it’s hard for them to do. And this brings us to the next and last plan that we’re going to talk about today, which is the Simple IRA plan. And this is actually what we have at Christian Financial Advisors cause we’re considered a small employer as well. This is allows a contribution of up to $12,500 per year and add an additional $3,000 on top of that. So, I’ve got a real strategy here that I’ve used a lot because I’ve been self employed for so long. We’ve got a husband and wife that work together. We just had one recently from Chick-Fil-A, and the spouse, the amount that he was paying her was this certain dollar amount. Little did he realize that he could pay his wife $15,500 per year and put all of that into the simple, it’s not a percentage of your income. You can put it all in there. So, if you’re a husband and a wife and you own a business and the wife is a stay at home wife and mom and you could put her on company payroll, she could put all of her money in – and have her do some things for the company, of course – we’re not saying to do anything illegal.
Mary Jo:
A lot of times she’s doing all the marketing for you, for example.
Bob:
Well, that’s true or doing the books.
Mary Jo:
That’s right.
Bob:
So you pay her a reasonable salary. She could put 100% of her salary into the simple plan all the way up – if she’s above 50 – up to $15,500 so it’s a great strategy. Again, see your CPA, make sure that’s a good one that would work for you.
Mary Jo:
We’re just trying to wet your whistle. Rolling, honey, give you an overview, but these are no by far have we gone over all the rules and regulations so you want to look into that deeper and see if it does apply to your individual situation. Strategy number two, that’s a defined benefit plan. This is a pre-established benefit for employees at retirement. Employees often value the fixed benefit of the plan, so it’s kind of like the old pension plans that used to be available, if you will, and the maximum that employer can contribute to a defined benefit plan is 220,000 and this is the employer’s contribution that can depend on the age of the employee. The older an employee is, the more that can be contributed into the defined benefit plan by the employer. What else do they need to know, Bob?
Bob:
So I just heard you say 220,000 now that has a lot to do with age and how old you are. But yes, that’s what’s crazy about a defined benefit plan. You can put over 200,000 you know what is interesting on top of this too, because we were just talking about contribution plans 10 minutes ago or five minutes ago, you can max out a defined benefit plan and you can max out a defined contribution plan. So you’ve got somebody in a high high income range that can put up to 220,000 and a defined benefit plan and another 50,000 into a 401k. Again, got to make sure your CPA run this by them, but that’s the kind of money that you could defer and we’re talking some serious tax savings of well over a hundred thousand dollars if you could do something like that because you’re going to be in that higher effective tax bracket of 30% plus,
Mary Jo:
And that is something really important for our high income earning professionals out there. You know, if you’re a self employed doctor, lawyer, anything along that line you should be taking advantage of these. Well you definitely encourage you to check into that tax advice with your professional advisors.
Bob:
The third strategy is just income timing. This could even be if you’re retired, but especially deciding do I want to take that bonus this year or next year? And it has a lot to do with how much are your itemized deductions going to total. So look at that and time your income based on a two to three year time horizon and try to push it possibly all into one year or even span it out over several years. Cause maybe you’re going to get a bonus this year but you’re not going to get one next year. See if they’ll split the bonus and give you half on December 30th or 31st and the other half on January 2nd or third.
Mary Jo:
And that’s a lot easier for the small businesses who have some customization ability. Have you worked for a major corporation? You know they have some pretty standard rules that they have to apply for all employees, but you’re a small firm. You might have some flexibility there.
Bob:
This next strategy I’ve got written down here, very Joe, is the use of a donor advised fund. And this is a really good program for somebody that wants to set up, what I refer to is nearly a giving bank account. Now, whatever you put into that, giving bank account in quotation marks, whatever you put into that giving account, you can’t take it back. It’s got to go to charity.
Mary Jo:
It’s a gift.
Bob:
Yes, exactly, but whatever you put into it is deductible up to a percentage of your income. This say you don’t know who you want to give all the money to. This might be somebody that has a huge bonus in one year, but they’re not going to get that in a second year and they want to give a large amount to some charities, but they don’t really know who those charities are or if maybe they do. They don’t want to give that much all at once, but maybe span it out over two to three years or five years, but they need that tax deduction right now, this year, that’s where we utilize a donor advice fund to figure out how to help you in a large income year. You’re giving over the next two or three years. Does that make sense?
Mary Jo:
You know, Bob, that’s a great strategy and one of the things that comes to my mind, it’s how many times do you belong to a church for example, and the church decides they want to build a new sanctuary or a new building and so they do a building fund and let’s just say you’re a member of such a church and you want to give generously to support that and you have some highly appreciated stock. You could donate that to a donor advised fund and parcel it out. You don’t have to give it all at one year. So you could give that in increments over a four or five year period depending on the length of that building fund and that campaign. And I think that that might work really well in that type of a situation.
Bob:
That is a perfect scenario, Mary Jo. I’m glad you brought that one up. The next strategy is medical expenses and this is where, again, because of what we shared at the beginning of the program, where a married couple, unless your itemized deductions are going to total over $24,000, you’re not going to get to deduct your itemized deductions. So medical expenses, if you can, lump those into one year so that you get a high enough amount to make it a deduction.
Mary Jo:
If you know you’ve got a bunch of testing coming up. I know last year or earlier this year, I guess it was, I did a lens implant surgery since I knew those were going to be all in this year, but I also gotta whole other testing done. So try to lump, all those together in one year, maybe a year when you have some medical or dental work that needs to be done so that you’re taking advantage of that 7.5% of your income and you can maximize that and then the next year you probably won’t be able to do it, but it’s kind of like alternating years, if you will.
Bob:
All right. I’m going to give this next strategy and then after that what I want to do is just have a quick break for y’all because I know if you’re listening to this podcast, your mind is probably starting to get like, ah, this is so much overload, but strategy number six and then we’re going to give you a little break here. Restructuring passive income, like in real estate, especially in commercial real estate, you can use what’s called cost segregation. Now this is why you’re going to probably need to give us a call and get a copy of these “18 Tax Strategies For 2018” because this is an example. The way that you own real estate and cost segregation is taking those things that rapidly depreciate like your heating and air unit in a building or your light fixtures in a building. You can depreciate that faster can you can the building, and that’s called cost segregation and you can get a larger tax deduction for those things that wear out sooner. I own our building where we are. It’s about a 11-12 year old building, but we’ve already had to replace some of the air conditioning units. But how you would deduct a building is over a 25-30 year period, but those air conditioning units lasts about seven, eight years in a commercial building like this before you have to replace them. So, you can take that deduction either all in one year or itemize it and take a cost segregation, rapid depreciate over that six or seven year period. Does that make sense?
Mary Jo:
Yes. And you know, I think this also speaks to when you say ‘restructure passive income’. You want to be thoughtful with where you put that income generating investment. If you have a taxable account and a tax deferred account, you might want to put those investments in the tax deferred account that spin off that additional income. That way you won’t have to pay taxes on that until you take a distribution. There are some tax efficiencies on where you place those investments, and I think that’s important for clients to think about. Also the types of investments we talk about in the bond world and the state of Texas. We don’t have a state income tax, so that’s not a huge problem for the majority of our clients, but if you live in a state that does have a state income tax, there are other kinds of bonds you may want to invest in that are more tax efficient for you. If you live in a high income tax state, you may want to invest in municipal bonds of that state because those don’t have state income tax liability. Lots of things to be thinking about on what kinds of investments that you do to generate income and where you put those investments.
Bob:
Mary Jo, tell somebody how they can give us a call right now. Give them some information about how to get hold of us.
Mary Jo:
They can reach us at our website for the podcast Christianfinancialpodcast.com or you can give us a call at 877-71-TRUTH.
Bob:
All right, so which strategy are we going to be covering next? What is our next one?
Mary Jo:
Our next one, strategy seven, is about required minimum distributions, RMD’s. Depending on where you’ve been investing all the time, you may have referred to these as a little bit different, but this is the money you have to start taking out of your tax deferred accounts after the age of 70.5. It’s not optional.
Bob:
This is so big, Mary Jo, you know why this is so big with a couple months left in the end of the year is because all of our podcast listeners that may be above 70.5, they may not have taken their RMD for this year.
Mary Jo:
Well, and I did hear that, you know, our leader in chief may be deciding to make some changes there and that may or may not be a good thing, but it hasn’t happened yet. So you’re still required to take that money out. And if your advisor hadn’t been in touch, it’s up to you. I’d be very proactive and make sure you get those distributions handled before the year end. A lot of clients don’t need their money to live on. So what are some strategies they can do with those distributions?
Bob:
Oh, the big one. I’m telling you, this is one of the biggest ones, and I know a lot of our podcast listeners, they don’t have anything to do with this because they’re like, I’m not even close to 70.5. I’m 25, but maybe you have a grandparent that is. This one is so big because they can take their RMD and send it directly to their church and totally bypass the tax system so that they don’t have to pay. If you take the RMD to yourself and then you go give it to your church, then as a percentage of your income nest deductible, and again, if those itemized deductions are not over $24,000 if you’re married, then it’s not going to count. But by sending your RMD directly to a charity or to your church. It goes right from your IRA to your church. And it’s a beautiful thing I’m so excited about. We do this all the time, especially because we’re a Christian firm. We’ve got a lot of Christians that want to give efficiently. This is one of the most efficient ways to give that I know.
Mary Jo:
Right. And a lot of people give to other charitable organizations that are not necessarily their church, but there are all kinds of opportunities across the globe that support kingdom work. There’s lots of flexibility there, but if you aren’t familiar with that and you think, well, I have to take my distribution but I don’t necessarily need the income, then I encourage you to check into that
Bob:
And as you notice, some of these are some giving strategies now. Like this next strategy is kinda like the RMD and giving away that to your church or your favorite charity. Strategy number eight is called a charitable gift annuity, and this is a very tax efficient way because you’re going to get a partial tax deduction based on the gift that the charity would receive at the end of an annuity. Now, think of it this way. You get a qualified charity that would issue a charitable gift annuity. You give them $100,000, and let’s say you’re 65 years old, but you’re giving them that in return for a guaranteed income for the rest of your life. Then, whatever is left in that annuity that you haven’t used up will go to the charity. Now, let me mention that annuities have been around forever and annuitizing an annuity has been an idea forever, but if you do this with an insurance , and you don’t use all of the money in your annuity that annuitized guess who gets to keep the money? The insurance company. But here, the charity gets to keep the money because they’re guaranteeing you for your life a certain income.
Mary Jo:
When I hear this, it always just reminds me of a reverse mortgage, if you will. It’s a way for you to get income now, but for charity to benefit in the end If you’re not fortunate enough to have a long life, and to win for both of you.
Bob:
And if you do a regular annuity with an insurance company, you’re not going to get a tax deduction. But if you do a charitable gift annuity, you’re going to get a tax deduction partial. It’s not going to be all tax deductible because remember, some of that’s going to be coming back to you
Mary Jo:
That leads us into strategy number nine, a charitable remainder trust. There’s all kinds of different trust out there, but what exactly is a charitable remainder trust?
Bob:
Well, I like to set up a charitable remainder trust in the case of a sale of a large piece of real estate. Our headquarters in Central Texas – property around here is just unbelievably hot. I mean it’s sells like the old saying, it sells like pancakes.
Mary Jo:
We were up there this weekend and just the growth around the New Braunfels area and the Texas Hill Country, it is amazing.
Bob:
It truly is. And if you have 20 or 25 acres here in the Texas Hill Country, it’s worth over a million dollars. 10 years ago, maybe you paid a couple hundred thousand for it at the most. So now, you’ve got this huge $800,000 gain and maybe you’re charitably minded, but you really don’t look at it too favorably. If I go sell this property, I’ve got an $800,000 gain, I’m going to have to pay tax on the whole thing. If you took that property and you donated it to a charitable remainder trust, and the charitable remainder trust sells the property, you don’t owe any tax at all. The kicker to it is you’re going to be able to get an income back for life and possibly even your children will get an income for their lives, but then someday whatever is left in that charitable remainder – just like it’s what it’s called remainder trust – whatever’s left in there will go to a charity. What we do is we help a family form their own family foundation using the donor advice fund like we talked about earlier. It’s a great strategy for those who have real estate with huge amounts of gains in them and want to sell them in a very tax efficient way.
Mary Jo:
That brings us to strategy number 10. We were talking about a charitable remainder trust and the next one is a charitable lead trust. This is just the opposite. You donate the assets that spin off income for example, and the charity gets to take advantage of that income for however long you deem appropriate. Typically, it’s for a few years, but then at some point when the need arises, the assets come back to the donor and they can then take advantage of that income that is spun off those assets. Does that make sense, Bob?
Bob:
It made sense andwhen you said it. That’s Exactly the way it works. Enough of this could make your head spin. So again, we know all these strategies and these strategies can result in literally thousands and thousands of dollars in tax savings. Give us a call and we’ll be glad to go over these strategies with you. All right, we’re just going to zip through these last six or seven very quickly. Strategy number 11 is sales and property taxes. They are deductible, but again, remember that the property tax now is capped at $10,000. If you have a home in which your property taxes are $12,000 with the new tax laws, you’re only going to get to deduct 10k.
Mary Jo:
Another one is a health savings account. Only an eligible individual can contribute to a health savings account. These are typically sponsored by an employer. The employee or both may contribute to the HSA. I know that my husband’s company, for example, the employer contributes as does the employee, and whatever you contribute into it is growing tax free. As long as it’s pulled out to use for a medical type expense, it’s qualified, then you never have to pay taxes on that gain that’s happened within the account. And you can use the balance to pay for medical expenses, which also include insurance premiums. So, if you’re paying for longterm care insurance, you can use the health savings account to pay for your premium.
Bob:
I did not know that. Really?
Mary Jo:
Yes.
Bob:
I never knew that.
Mary Jo:
Yes. If you could load those up right now while you’re working before you retire, you can hold those assets and then keep that balance in there and it can pay your Medicare premiums or your longterm care insurance premiums. So, it’s a great way to kind of build up some assets to cover those medical expenses before time for Medicare kicks in.
Bob:
And there’s catch-ups too that you can put additional dollars in if you’re above 55. So for a family, you can put up to $6,750 and add another thousand on top of that if you’re both over 55, and this is on the front page of your tax return. It’s not under itemized deduction. This comes out right off the front of it, kind of like a deduction that goes into a defined contribution plan.
Mary Jo:
So is that what’s known as an above the line deduction?
Bob:
Yeah, that’s correct. You got it. To put money in a health savings account, the amount that you can put in, you need to have a high deductible insurance plan, which most of us have today. All right. Strategy number 13 has to do with just capital losses. None of us want to have losses, but you have losses. You can offset gains with losses. So let’s say you have a stock portfolio, it’s got 50 stocks and hopefully 35 or 40 of them have gains, but you’re going to have a few with losses in there too. So, you sell your gains and you sell those with your losses. Maybe you want to keep those stocks, but you can sell them at the end of the year and it can go against the gain. Then you can buy those stocks back, actually, 31 days later.
Mary Jo:
31 days. So you want to make sure you don’t buy the same security, right back because that’s what’s known as a wash sale rule. You want to make 30 days, but you can buy something similar so that you’re not out of the market during that time.
Bob:
Strategy number 14 is creating a small business. Small businesses have so many different strategies they can use. If you’re going to have 25% of your home or 20% of your home is going to be used for that business, then 20% of the expenses of that home can be a tax deduction. Now again, you’ve got to run this by your CPA and make sure this is all above board. We would never emphasize that you do anything that would get you in trouble. We want to make sure that when we give these strategies to you, you gotta run them by a CPA or qualified tax advisor.
Mary Jo:
And we’re only suggesting a legitimate small business.
Bob:
Strategy number 15; give highly appreciated stocks to your charity instead of cash. Now, why would you do that?
Mary Jo:
So that you don’t have to pay the capital gains if you sell them upon selling the stocks.
Bob:
Right. Let the church sell it, and then the church doesn’t have any of the gains. Yet, you’re going to get the value of that stock as a full tax deduction.
Mary Jo:
It’s kind of a no brainer.
Bob:
16 most of us know about is the mortgage loan interest, that can be deducted on first and second homes, but there’s a limit on that. Now it’s up to $750,000 if you itemize your tax deductions. Mary Jo, I’m going to let you take it on home to 17 and 18.
Mary Jo:
Okay. The one thing on that mortgage loan interest is always want to remind our listeners that you can no longer deduct a home equity interest, but a mortgage loan is up to $750,000. The next is student loan interest. You can deduct up to $2,500 paid in 2018 towards your student loans. So, there is again some benefit for those. And then finally, strategy number 18 is self employed health insurance. You can deduct what you spend on health insurance premiums if you’re self employed and don’t qualify for a company sponsored health insurance plan. These are for the self employed individuals. Lots of benefits for those small business owners out there that they really need to make sure that they’ve got a great tax advisor.
Bob:
So there’s all 18 tax strategies. If you were able to stay with us during the entire podcast, God bless you. We’ve tried to be as enthusiastic as we can. I know taxes can be boring, but you know what? Like today’s program, it could be worth thousands and thousands of dollars in tax savings to for many of you if you utilize these.
Mary Jo:
There’s nothing boring about that.
Bob:
No, not at all. So it’s gonna be some good time well spent. I would emphasize that maybe you come back and listen to this again. Tell your friends, tell your aunts, tell your uncles, tell your cousins. I just don’t know many people that like paying taxes, so have them listen to this show. It’s christianfinancialpodcast.com. It’s easy to remember. We tried to make it easy. You can find us on iTunes as well. There’s just so many ways that you can listen to this program. If you haven’t heard all of our programs, maybe this was the first one. Go back and listen to a few because we really are trying to educate you about what God’s word says about money just good common sense. Financial….Come on Mary Jo, help me. Help me.
Mary Jo:
Well, good common sense. Financial wisdom.
Bob:
There you go, sister. There you go.
Mary Jo:
And just some great reminders out there. We hope that our words today have been a blessing and a reminder that maybe if you do have some questions out there to go get and seek advice, but we certainly hope that our words have reached you and been meaningful and until next time.
[CONCLUSION]
Mary Jo: You’ve been listening to Christian Financial Perspectives. Join us as we explore more about how to apply biblical wisdom to your financial situations.
Bob: To make sure you don’t miss any of our podcasts, you can subscribe to Christian Financial Perspectives on iTunes, Google Play, or Stitcher. To learn more about integrating your faith with your finances, visit out website at ciswealth.com or call 830-609-6986.
Mary Jo: That’s all for now.
[DISCLOSURES]
Comments from today’s show are for informational purposes only and not to be considered investment advice or recommendations to buy or sell any company that may have been mentioned or discussed. The opinions expressed are solely those of the hosts, Bob Barber and Mary Jo Lyons. Bob and Mary Jo do not provide tax advice and encourage you to seek guidance from a tax professional. Investment advisory services offered through Christian Investment Advisors Inc. DBA Christian Financial Advisors, a registered investment advisor.