Find out what you can do to help your tax situation in the final month left of the year. Financial expert Jerry Guttman of Phoenix-based Guttman Financial Group will tell us more.
Ted Simons: Financial experts consider this an important time of year to consider your taxes. And to remember that there is still time to make adjustments to impact next year's returns. We recently talked about all this with Jerry Guttman of Phoenix-based Guttman financial group. Welcome to Arizona Horizon, good to have you back.
Jerry Guttman: Thank you very much, Ted, thanks for having me.
Ted Simons: Good to see you, a final month of the year. Pretty good time to think about taxes.
Jerry Guttman: Should be.
Ted Simons: How come?
Jerry Guttman: There is so many things that people can do but don't do. They wait until January or February, and they have wasted the best time of year because the end of this year, the end of every year, there is choices that you have to reduce your taxes significantly.
Ted Simons: And I would imagine charitable gifts ranks pretty high on the list?
Jerry Guttman: They are fantastic. Through the State of Arizona, you could do something to schools. And you could take up to 2,000, and donate up to 2,000, 2,100, for a husband and wife, or 1,000 for a single person. Or you can go 200 and 400 for the state.
Ted Simons: As long as they are given by December 31st, you are ok?
Jerry Guttman: You are. You can, actually, send in, for those that like to squeak things through, or squeeze a little more they can put it on a credit card, December 31st and pay it in January if that's what they want to do.
Ted Simons: I would imagine that keeping receipts for charitable donations is very important?
Jerry Guttman: Mandatory.
Ted Simons: Yes.
Jerry Guttman: Mandatory. You want to make sure that the odds on getting audited are lower and lower. However, you don't want to look for it later, it does not take much to save the receipt for the check you wrote.
Ted Simons: I want to get to a number of things but there is something is out there called lost harvesting, that I would never heard of before. This is pretty important stuff, what is lost harvesting?
Jerry Guttman: It allows you, at the end of the year, to take a stock you may have owned, that lost money, selling it at the end of the year for the loss, and get -- you could write that off against your income. It does not work in an ira, it does not work in a qualified or pretax account or a Roth ira or a 401(K), but if you live in one that's an after-tax account, and you own individual stocks, you can, and even a mutual fund, you can take and sell them before the end of the year, and take that loss, so if you bought it, if you put in 10,000, for that stock, and it was worth 3,000 or 4,000 you, you could sell it for that 3,000 or 4,000, and the difference of the loss, you could write off against your taxes.
Ted Simons: These don't carry over to the next year, do they? Or do they?
Jerry Guttman: It may, it depends. You may only get a certain percentage and you may have to take 3,000, so it caps at 3,000 going forward a year.
Ted Simons: Because I know that deferring income and maybe if you get is a year end bonus, that's a strategy, as well.
Jerry Guttman: It's a wonderful strategy. However, what if you get the bonus the next year? And what if you -- what if you did he ever it, and it puts you in another tax bracket, and that's a problem for many.
Ted Simons: So deferring income makes sense, but if you are thinking next year is going to be a Bonanza, and deferring income means more taxable income, not such is a smart idea?
Ted Simons: Ok, 401(K) contributions, is it wise to hike at the year end and maybe back off?
Jerry Guttman: No. What I encourage people to do is put away what you can, at least make sure that you put into the match. If you can afford that. What I tell everybody to do is every January, increase your 401(K) 1%, and you will not feel it in your paycheck normally. However, at the end of the rainbow, when you retire there will be significantly more dollars. It's a simple thing.
Ted Simons: What about self-employed? What kind of ideas regarding 401(K)s and Roths?
Jerry Guttman: For a -- there is something called the single k so you can do, get up to 54,000 deduction in a single k, that works very much like a 401(K) if you have a group or a large pool of employees, and many employers, self-employed people, you can take is a 1779 deduction, so if you want to buy an SUV, a heavy SUV, or a pickup truck, you can get up to 25,000 deduction for it. At the end of the year. So, it's something that you really want to consider because it's a significant investment.
Ted Simons: Now, as far as investing, that's one thing but distributions, ira distributions. What do you need to know about, at year end, which may help in 2015, also in 2016?
Jerry Guttman: Well, when you -- if you are over 70.5, the biggest challenge I come across if they have a large ira, the required minimum distribution starts at 3.65% so if you take 100,000 in the ira on December 31, you multiply it by the .01, I'm sorry, the .0365, so you don't have to take out 3650 out of your 100,000 the first time. But if you don't take it out, there is a 50% penalty.
Ted Simons: I was going to say, the operative word is required, is it not?
Jerry Guttman: It's mandatory.
Ted Simons: Yes.
Jerry Guttman: It's a requirement.
Ted Simons: And folks are not necessarily all that clear on that.
Jerry Guttman: Rarely clear. So, I make a point of talking to my clients, and I, actually, make them set up all their distributions on an automatic structure. So that they cannot make the mistake.
Ted Simons: Yeah.
Jerry Guttman: So they don't -- whether you take it monthly, quarterly or whatever the income needs, doesn't interest me. That's up to you but you have to set it up early in the year so you don't forget because the institution is going to send you a letter in January that takes care of their liability and now it's on you.
Ted Simons: Tax deductions and the alternatives minimum tax, what's the relationship there and what do you need to know?
Jerry Guttman: The alternative minimum tax is sort of, comes up and bites you. So if you are a large -- it depends on the deductions you take how it is structured, and I would absolutely talk to your accounted in advance. So most people do tax -- very few people do tax planning, and many do tax returns. There is a huge difference, I find myself doing seminars regularly for a lot of institutions. Saying please, plan your year. Don't wait until tax time to get all your 1099s and then forget to do something. Because you chose not to. Turn over every rock, ask a lot of questions and I always encourage people, even if you do your own return, every five years, even if you do it yourself, pay a professional, to double-check your work once to confirm you have not missed anything because if you miss it, it can be thousands.
Ted Simons: Flexible spending accounts, affects some folks, as well. Is -- these accounts, is that a use it or lose it situation?
Jerry Guttman: It is. In most cases, it is. If you put it say way and you don't use it. Here's a challenge of people, that people are not aware of because of the health care plan, aca, they are going to be receiving small business owners, have to send out, there is a new form for all employers, the 1095c. And so, next month, by the middle of January, I believe, it is, and ironing out still all of this stuff, but they will be sending out all the forms to the employees of small companies. That participate. Your listeners need to be aware that there will be some new taxes. There will be some new things that they need to be aware of. It will come up and bite them in the tush, and they are not going to know.
Ted Simons: We don't want to get bitten in the tush so you most important thing to remember at year's end regarding taxes. What do you think?
Jerry Guttman: Open your eyes and take off the blinders. Look at what's going on. Talk to your professional now, don't wait until he sends you the tax -- he wants you to compile information, don't wait until January. Get it today. Call them, call him or her today and ask them what you should do for yourself. And then plan.
Ted Simons: Well, good information at year's information. Everyone is in holiday spirit but keep this in mind.
Jerry Guttman: This is an important time of year for everybody.
Ted Simons: Jerry, good to have you here.
Jerry Guttman: Thanks so much.
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Ted Simons: Tuesday on Arizona Horizon we'll get a live update from the U.S. Supreme Court on tomorrow's oral arguments, involving an Arizona redistricting case, and we'll learn how Arizona musicians from the 1950s and 1960s made an impact on the national music scene. That's at 5:30 and 10:00 on the next Arizona Horizon. That's it for now. I'm Ted Simons. Thank you very much for joining us. You have a great evening.
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Jerry Guttman: Financial Expert Phoenix-based Guttman Financial Group