Episode Transcript
[00:00:00] Speaker A: In this episode, we talk about end of year money deadlines that are important for your finances. Let's get started.
[00:00:06] Speaker B: Let's get some money from New Money New Problems. It's the New Money New Problems podcast, a show for successful professionals searching for the tools they need to navigate financial opportunities and obstacles they've never seen.
Negotiating compensation, Purchasing your first investment property. Helping your family with money. The highs and lows of, uh, entrepreneurship. New Money brings new problems that require new solutions. Join us as we work through them together.
I'm Brenton Harrison and this is the New Money New Problems podcast.
[00:00:44] Speaker A: Hello, my name is Brenton Harrison of New Money New Problems and your host for the New Money New Problems podcast. Hope that the week coming out of the holiday has not been too stressful for you all. Uh, in transparency, it has been a crazy week for me trying to get back into the swing of things. And before we even get into this week's episode, I want to remind, remind you about an upcoming webinar, uh, from Escape Student Loan Debt. As a reminder, Escape Student Loan Debt is not connected to our work at New Money New Problems, but it is the platform where we operate another podcast and we share information on federal and private student loans. There's a webinar coming up from Escape Student Loan Debt this coming Tuesday, December 10th at 6:30pm Central Time. We will put the link in the show notes that you can register for this webinar and also so that you can send it to a friend. So if there's anything that you're confused about, concerned about, want to ask questions about when it comes to your federal or private student loans, I encourage you to go to that link in the show notes register, send it to a friend, uh, as well, who may be struggling with federal or private student loan debt. Now to this week's episode. I will tell you that it's towards the end of the year. It is not something or a time where I think a ton of people are trying to, uh, take deep dives into podcasts and uh, go through a lot of granular detail when it comes to the things that they're learning. So the last few episodes of the year are going to be, uh, pretty light. You know, we're going to touch on some key topics, get in, get out of the, um, we have some interviews coming up. We'll have some highlights of episodes in the past that we think, uh, are worth revisiting. So in today's episode, I thought we would just go through some really quick end of year money deadlines that you need to know for things like retirement accounts, charitable contributions and the like that may impact your finances. And we're going to start with employee benefits. We're going to go to something that I talk about all the time, but I haven't shared an element of this employee benefit that is often overlooked and that is flex spending accounts. So you are very well aware of the fact that I think that the most underutilized employee benefits are health savings accounts, Flex spending accounts, independent care, flex spending accounts. Health savings accounts are accounts where you can put in money pre tax. That money grows and is not taxed as it grows. It can actually be invested in the market similar to your 401k. And after the age of 65 you can use it for whatever reason, uh, you choose. It doesn't have to be a health related expense. But an HSA is an account that has no limits on the amount that can be rolled over from year to year. Conversely, there are dependent flexpiny accounts. Dependent flexpiny accounts are accounts where you are putting money aside, uh, that you are using to pay for certain costs related to child or elder care. And then you have flexpiny accounts. Flexpinning accounts have a number of similar uses and uh, eligibility when it compares to a health savings account. But a flex binning account and independent flexibility account are what's called use it or lose it plans, meaning that whatever is the calendar year end, in some cases they'll give you a bit of an allowance that is employer specific. You have to spend any of the funds that you set aside for those purposes before that year and otherwise they revert to the plan. So as an example, with the dependent flexpiny account, if the end of the year is your deadline, you can put up to $2,500 into that account if you are single or married filing separately, up to $5,000 if you are married filing jointly per family. But you have to make sure that you have used all of those eligible funds towards things like getting reimbursed for summer camp, like paying for tuition that is short of kindergarten age, like paying for eligible childcare before that deadline hits. Or if there is say $1,000 left in the plan, it will literally revert back to the plan and you have lost that thousand dollars. Flex mini accounts are also a uh, use it or lose it plan with a slight wrinkle. As a matter of fact, when you look at a flex Mini account, there is what's called a carryover limit. If you're looking on screen you can see that the carryover limit for 2024 is $640. So that means that it is a use it or lose it plan. As a matter of fact, in 2024, you can put up to $3200 into this plan. But you don't have to necessarily spend that entire 30 $200 before you lose the funds. You can get within that $640 window. And if you don't spend that 640 or less, it will simply roll over to the next plan year. That is something that is typically indexed for inflation. As you can see on screen, in 2025, that increases from 640 to 660. But I can tell you it is very common for people to, during open enrollment season, set an amount that they're going to put in their flexpinning account, get to the end of the year, they haven't spent any of the money and they're trying to scramble. Go to Waldgreens Duane reads CVS and find reasons that they can use that money. So if you're looking on screen and we'll put this link in the show notes, there are several things and categories that can be used for a flexpiny account. Everything from home m health care to over the counter medications, baby and child supplies, skin care, eye care. That includes exams, uh, for your eyes, contact lenses, uh, prescription eyeglasses, oral care. This can be something that you use at the dentist or something that you even use to pay for expenses that are not covered when it comes to meeting your deductible. So if you are in that camp where you set aside money in the fsa, you haven't spent it and you're trying to get within that $640 limit, you want to make sure that you, if you can get in to see the doctor before year end, if you have an eye exam that you're wanting to schedule before year end, or if you simply go to one of your favorite retailers, that you spend that money before the end of the plan year for both your flex spending account, well, as your dependent flexpiny account. The next deadline we're going to discuss is charitable contributions. So charitable contributions, aside from the fact that you are a giving person and a charitable person, is something that many people do because there is a tax benefit for those who are charitable and choose to itemize their taxes. So the typical person, unless they are really charitable and also own property and have other things going on, it's highly likely, at least statistically, that they would take the standard deduction. But if you are one of those people who does own property and does have things like significant charitable contributions. Maybe you're paying tithe and offering or whatever the equivalent is for your faith of choice. Or maybe you are just exceedingly generous to your favorite nonprofit. Then you may be the type of person that chooses to itemize. And charitable contributions are a very powerful itemized deduction because they're what's called a dollar for dollar deduction. What that means is this. There are some things where you may spend a certain amount of money on them, but it doesn't mean that you get the full deduction of that purchase in terms of how much it lowers your taxable income. For example, if I make $100,000 and I buy $1,000 laptop for my business, that's tax deductible. It doesn't necessarily take my taxable income as a business owner from 100,000 to 99,000. It may be that that's not a dollar for dollar deduction, meaning that I spent $1,000, but it only deducted $500 from my taxable income. Charitable contributions, however, are dollar for dollar, meaning that for every dollar that you contribute to an eligible nonprofit or 501C3, it reduces your taxable income by that same dollar. So if you do choose to itemize, charitable contributions are not only valuable, but it's something that if you want to take that charitable contribution deduction in the current year, you have to do it before the end of the calendar year. And this is also true for things that you're donating to, like goodwill. So that's something that you can keep track of as well. And you need to make sure that you have your records before the end of December 31st. And conversely, there are some times where there are people who kind of flip back and forth between itemizing and taking the standard deduction based off of a tax strategy for the current year. So if you're looking at your charitable contributions, I'll give you an example of when you wouldn't want to do this before December 31st. Let's say that you are looking at your tax burden and I would encourage you to have an idea of what your taxes are going to look like before the end of the year. That's actually going to be a step that's upcoming. But if you're looking at your tax burden and you're pretty clear on the fact that you are going to take the standard deduction, then while you can still be charitable, it is not as beneficial from a tax perspective to do it before the end of this calendar year. Now let's say that next year there are some things that are going on in your life where you think that there's a higher likelihood that you would itemize your, uh, taxes. It may be that you're buying a property and you're going to have more mortgage interest that you could deduct, or you're using a home equity line of credit to make improvements and renovations to that property where you can deduct the interest. It may be that your property taxes or your state and local taxes are going to be higher. It may be that you are anticipating some larger medical expenses that may make your medical expenses partly deductible in terms of your taxable burden. And for all of those reasons, you think that you're going to potentially itemize. Well, one strategy that people have when it comes to charitable contributions is instead of spreading them out over every single year, they will do what's called bunching contributions, meaning if they're going to be really charitable to a nonprofit, instead of say, putting that money towards the contribution in December 31, they will take what they were going to contribute in 2024 and add it onto what they were going to do in 2025 and bunch those contributions together to increase the likelihood that it makes more sense to itemize because they'd have more deductions. So if you're looking at your taxes and you're thinking that you might take the standard deduction, then you would consider meeting with a tax professional to figure out whether it would make more sense to bunch contributions and hold off until 2025. Along those lines, it's time for the next tip and the next end of year money tip is to reach out to a CPA or tax preparer now so that you can form a relationship for the person that's going to file your taxes for the year 2024. I cannot tell you, uh, how like against I am the typical high income earning household filing their own taxes. To me it's just one of those things where it, yes, it's something you could do on your own via TurboTax. Yes, your may be relatively straightforward, but if they're straightforward, then it's going to cost you less to get a professional to file for you. Anyways. Most of the time when you see a, uh, really big tax bill, it's because your taxes are very complex and there's a lot of schedules to your tax return. You may be a business owner or a property owner or own llc, and every single time you have to add a schedule to your tax return, it typically adds cost to the filing of that return. But if your return is simple enough where you're going to take the standard deduction and you really just need a 1040, which is basically just the summary of your tax return, for lack of a better, ah, phraseology, then it's not going to cost you a tremendous amount to have a professional file it. But in my opinion, the value is in having a professional tell you whether you should take the standard deduction or should itemize to look at your financial situation and tell you some things that you may be missing that could either save you money or lack of knowledge of it could cost you money. So I always encourage people to pay the expense to have a professional file their return when they're a high income earner because you are at higher risk of missing things that are of value or that could lead to an audit when you are a high income earner in the first place. That being said, when I tell people this, they typically wait until they've gotten all their W2s at the end of January, and then they reach out to a professional and they find that that professional has already closed themselves off to new filing clients for the current tax year. And that's because these people's years are basically broken down into the spring filing season and the fall filing season. And if you reach out too close to the filing deadlines, it's highly likely that a busy professional is no longer accepting new clients. So instead of waiting till January or February or March or, heaven forbid, April to form a relationship with the tax preparer, I encourage you to reach out now. Matter of fact, there are people who've already been doing this. I, uh, know CPAs who are already closed for new business and it's not even the middle of December yet. So you want to make, make sure you take the bull by the horns. Reach out to some professionals that you think may be a good fit, or ask for referrals. And reach out to them now to make sure that you are in the fold and can have a professional file your return for 2024 M. This is.
[00:13:15] Speaker C: The New Money New Problems Podcast, a show for successful professionals searching for the tools they need to navigate financial opportunities and obstacles they've never seen. We'll be right back.
[00:13:32] Speaker B: Are you wondering what new money problems you might be overlooking in your financial life? If so, we've got great news. We've crafted the New Money New Problems gap finder to identify potential weaknesses in your finances in areas ranging from budgeting, investments, insurance, and even the threat you're extended family's finances could pose to your household, please head to newmoneynewproblems.com Gapfinder to complete it today. Again, that's newmoneynewproblems.com gapfinder to take the assessment.
[00:14:11] Speaker C: You're listening to the New Money, New Problems podcast. Subscribe now@new money, new problems.com welcome back.
[00:14:22] Speaker A: Welcome back for the break. The next tip for the end of the year is to consider whether it would be valuable to make an end of year contribution to your employer retirement plans. And if it's been a tough year for you, then this may not be something that's on the horizon. If you're trying to pay down credit card debt, or if you feel like you may have not saved enough for taxes, if you're struggling with other things or you're just trying to make sure you have enough money to get through Christmas, then it is what it is. But if it's been a good year, if you are stocked in savings, if you have been contributing and you're in a position where you have some money that if it helps you save on taxes, is worth doing, then you can consider making an extra contribution. If you have not already maxed out contributions to accounts like your 401K, your 403B M or your 457Plan. If you're looking on screen, you're looking at the tax tables for 2024, you can see that for the 401k, the 403b and the 457, you can contribute up to $23,000 in the calendar year 2024. Now there are some RET accounts like an IRA or a SEP IRA, which stands for Simplified Employee Pension IRA, a Roth IRA where even though you are contributing for the 2024 tax year, you have up until the filing deadline in 2025 to make the contribution. That's April 15th. So I could conceivably make a $5,000 contribution to an IRA by April 15th of 2025 that is coded for the 2024 tax year. But when it comes to the 401k, the 403b, the 457, that contribution has to be made before the end of the calendar year. So if you've set your retirement contributions where you are simply contributing what your employer matches but you haven't maxed out the account and now you're looking and saying, hey, I got a couple thousand dollars that I could put towards this, it's very useful to know what the tax brackets are to be. It's very useful to be able to meet with the cpa. Have an idea of your marginal tax bracket, which is the tax bracket that the highest portion of your income falls into so that you can have an idea of how much you would save in taxes by making a certain level of contribution. So for example, if you're looking on screen, we have the tax tables up for 2024. Let's say that we have a couple that is married filing jointly and they have a taxable income of $200,000. Well, you can see that that $200,000 would put them right at the top of the 22% tax means that unless they earn enough to bump them into the next tax bracket, every additional dollar that they earn within this window is taxed at 22 cents on the dollar. So if this person decided that they were going to put an additional thousand dollars into their 401k, we can look at this tax bracket and say that because this portion of their income is taxed at 22%, they are saving $220 in taxes by putting that thousand dollars into their 401k. And if this is something that you feel might benefit you, you should not only consider it, but you got to make sure you consider it before December 31st. So be aware of these deadlines. Like I said, there are several other things that you could do, but like I said, we've got a lot of things coming. Got the State of Student Loans webinar coming for Escape Student Loan Debt this Tuesday. Several other things at the end of the year that we want you to be aware of. So this week we want to just give you some quick hitting tips for money moves that you can make before the end of the year. I will be back next week from.
[00:17:49] Speaker B: New Money, New Problems this was the New Money, New M Problems podcast, a show for successful professionals searching for the tools they need to navigate financial opportunities and obstacles they've never seen.
