What is the difference between a taxidermist and a tax collector?
The taxidermist takes only your skin. -Mark Twain Here we are, tax season again. The tax filing deadline is Monday, April 15th, 2024. You can extend your tax filing until October 15th. Just remember to file the extension request (IRS Form 4868). Here are some things to keep in mind.
• You can contribute to a Traditional or Roth IRA for 2023 until April 15th. o You can contribute $6,500.00 if younger than 50.
o If over 50, it is $7,500.00.
o Full contribution is allowed if your Adjusted gross income is less than $116.000 for married or $73,000 for single. After that, partial deductions are allowed.
o For Roth IRA the income limits are $218,000 married and $138,000 single with partial contributions are allowed after that.
• If you are self-employed or have a side hustle, you may be able to set up a SEP IRA. The contribution deadline is April 15th or your tax filing date as long it is not past October 15th, (if you have extended your tax filing).
• If you have a high-deductible health insurance plan, you can contribute to an HSA before April 15th, 2023.
o The 2023 maximum contribution limit is $3,850 for single
o The 2023 maximum contribution limit is $7,750 for families
o If you are age 55 and older, you can add $1,000 to the limits.
o High deductible plan has a minimum annual deductible of $1,600 for individuals and $3,200 for families, with a maximum out-of-pocket limit of $8,050 and $16,100 for families.
After you complete your tax return, it may make sense to let us review it and see if there are any opportunities in the coming year to reduce your taxes for 2024.
Roth IRA Conversion
A Roth conversion is when you take a regular IRA and convert it to a Roth. You will pay taxes on the amount converted in the tax year completed. Now, these funds are now tax-free to you and your heirs.
We continue to recommend Roth IRA conversions. This is a great way to move from ‘forever taxed to never taxed.’
We got to meet Ed Slott at a conference in February.
Consider the Tax Efficiency of Roth IRAs
If you take part of your IRA and convert it into a Roth with all the tax-free advantages, you will have to pay the taxes on the amount converted at ordinary income rates with no penalizes, even if you’re under 59 ½.
“Whoa! I have to pay taxes,” you say. “Turn the page on that!”
Here is where understanding your effective rate is important. Depending on your situation, you could convert at a low rate (say 14% or lower) to move your money from always taxed to never taxed!
“I don’t know,” you say. “If I convert $100,000, that is $14,000 in taxes! You’re killing me here! Wait? You want me to do this for several years? Are you out of your mind?”
Allow me to illustrate. Have you ever bought new windows, an HVAC unit, or other home improvement? Was the energy efficiency that would generate energy savings you would get a significant factor? The windows would pay for themselves in reduced hearing and cooling costs in a few years, right? Did the salesperson say, “This HVAC unit is 36% more energy efficient and will pay for itself and save the environment.”
The same is true of a Roth IRA. (Except for the environment) You’re just not seeing it yet. Could taxes go up in the future? In 2024, we are in the 3rd lowest tax environment in the last 80 years! Moving taxable money out of your IRA now will allow you to control your tax bracket and reduce the taxes you pay on social security now or in the future. (More control, less taxes, and more income)
Roth withdraws do not tax your Social Security benefits. This is important in retirement. Taxes can be a major expense and decreasing them improves your retirement lifestyle.
One last point to consider on Roth IRA is aer the death of a spouse. Tax rates double. If a widow has a Roth IRA to draw on then she/he may be able to reduce taxes significantly.
Social Security Hacks
Do you Qualify for Social Security Disability?
If you meet the criteria for SS disability, (and you know if you do) you will want to file for this benefit before filing for SS. Many people who clearly qualify for disability, decide to wait for FRA (age 66-67) to collect SS. This is a mistake. Understand first that SS disability is not welfare, it’s insurance. Social Security is insurance and the payroll taxes that funds your retirement also funds disability payments. Just because some people have abused the system doesn’t mean you should avoid filing for disability (if you qualify).
SS Disability typically is based on your Full Retirement Age (FRA) amount. Collecting disability at 62 could add $200,000 to your lifetime benefits. Again, not chump changes my friend. We need to get your mind right on this, because we are back to ‘Get all the money you deserve’.
If you file for Social Security disability, get denied first then file for retirement, if you later get awarded disability Social Security will make up the difference. Other family members may get benefits based on your disability.
This will take time and patience on this issue. Disability is a long process. You will need an attorney or advocate to do this and they will want you to first be denied disability benefits. The SSA practically denies all first applications however this does begin the process. I am sorry to say you have to fight like hell to get it and this causes many to not start or give up. Getting an attorney will drastically improve your odds of getting approved but you need to file and get the first denial before an attorney will take your case.
Thought of the Month
While speculation is often confused with gambling, the key difference is that speculation is generally tantamount to taking a calculated risk and is not dependent on pure chance, whereas gambling depends on totally random outcomes or chance. –Investopedia.com under “Speculation”
Sources Citations Bibliography:
⦁ Quote attributed to Ed Slott, CPA, IRA and Tax Expert. Mr. Slott has written about IRAs and taxes. He is a permanent advocate for Roth IRAs in retirement planning. In the picture, I am holding Ed Slott’s book ‘The New Retirement Savings Time Bomb: How to Take Financial Control, Avoid Unnecessary Taxes, and Combat the Latest Threats to Your Retirement Savings.’
Supplemental Disclaimers:
This article is informational only and is not investment advice. This is not an offer to buy, hold, or sell investments like securities or insurance products.
Securities and Investment Advisory Services are offered though Toro Bravo Investment Advisors, LLC. Life Insurance and Annuities sold as an insurance broker are not a fiduciary relationship and are not offered by Toro Bravo Investment Advisors, LLC.
Securities or Insurance are not FDIC/SIPC insured and investments contain risk plus could be subject to loss.
Losses could be short term or permanent. Numbers and figures illustrated are hypothetical in nature and past performance is not a guarantee or indication of future results/performance.
We are not affiliated with the Social Security Administration (SSA), Internal Revenue Service (IRS), or any Governmental Agency.
Do not rely solely on the Legal, Tax, or Financial information presented for it may not be suitable for your individual situation.
Consult your legal, tax, and/or financial professional before acting on any strategy or recommendation (i.e. major changes or before initiating the purchase, hold, or sale of any investment or investment strategy). Every individual’s strategy can differ depending on current circumstances and goals.