Tax Planning to Shrink What You Owe w/ Sean Mullaney #758
Dec 6, 2023
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Tax planning expert Sean Mullaney discusses year-end moves and longer-term tax strategies, including traditional vs Roth accounts, upcoming changes to 401ks, and the best retirement accounts for solopreneurs.
Long-term tax planning is essential for minimizing total lifetime taxation and should consider factors such as early retirement, self-employment, rental real estate, and inheritance.
Hiring a tax professional is beneficial for navigating complex tax strategies and optimizing retirement account contributions, especially for situations involving early retirement, self-employment, rental real estate, and sizable inheritances.
When working with a tax professional, consider their specialization, seek recommendations, and prioritize firms that offer year-round tax planning and preparation services, emphasizing open communication, understanding of goals, and shared values.
Deep dives
Understanding the importance of long-term tax planning
Long-term tax planning is crucial for minimizing total lifetime taxation. It involves considering factors such as early retirement, self-employment, rental real estate, and inheritance. Hiring a tax professional can be beneficial in navigating complex tax strategies and optimizing retirement account contributions. Solo 401(k)s offer generous tax deductions and can be particularly advantageous for self-employed individuals. Roth IRA contributions are recommended for home savings, while traditional 401(k) contributions are preferred for maximizing current tax deductions. However, it's crucial to consider individual circumstances and consult a professional for personalized advice.
Indicators that suggest the need for professional tax assistance
Several indicators may suggest the need for hiring a tax professional, such as early retirement, self-employment, rental real estate, and sizable inheritances. These situations often involve complex tax rules and planning strategies. Working with a tax professional helps ensure correct calculations, adherence to tax laws, and maximization of available tax benefits. Establishing proper accounting systems, utilizing business bank accounts, and seeking assistance with comprehensive tax planning are important steps for solopreneurs.
Finding the right tax professional
When searching for a tax professional, consider factors such as their specialization and knowledge in areas relevant to your tax situation, such as early retirement, self-employment, or rental real estate. Seek recommendations from trusted sources, and consider firms that offer a year-round approach to tax planning and preparation, including consultations throughout the year. Asking tax preparers to work on extensions rather than rushing during tax season can optimize their availability and attention to detail. Open communication, understanding of goals, and shared values are essential when working with a tax professional.
The Benefits of Traditional Retirement Accounts
Traditional retirement accounts offer planning opportunities, such as Roth conversions when taxable income is low. Retirees can live off taxable assets and take advantage of lightly taxed capital gains. This allows for potential Roth conversions since the traditional retirement account is not needed. Despite the attention given to Roth accounts, traditional retirement accounts should not be overlooked.
Considerations for Tax Planning and Future Tax Rates
Future tax rates are unpredictable, but tax planning is still crucial. While the tax cuts and job act is set to expire in 2025, recent trends show that tax cuts for retirees are a common occurrence. Congress has consistently made tax cuts, such as delaying required minimum distributions (RMDs) and increasing standard deductions. Although one can never be certain about future tax rates, it is advisable to focus on personal circumstances when making Roth conversions instead of speculating on future tax rates.
Don’t believe long-term tax planning is crucial? Here’s a new way to think about it: picture having a slow leak in one of your tires. Well if you just noticed your tire looking a bit flat, then of course head to Costco for some free air, get that tire back up to pressure, and move on with your day – it's a quick and effective short-term solution. But also keep in mind that you’ll have to eventually figure out a permanent solution, whether it’s a plug or a new tire that’ll last you for years. You could keep kicking the can down the road and opt for the quick top-off, but eventually that shortsighted fix will cost you more in wasted time than addressing the problem at hand properly. Similarly, if you’re only looking for ways that you can pay as little tax as possible for this year alone, then you’re missing the forest for the trees. We’re pumped to be talking with our friend Sean Mullaney about minimizing tax liabilities on the podcast today. Sean, a fiduciary financial advisor who writes at FITaxGuy.com, will be delving into both year-end moves and longer-term tax strategies, discussing when he prefers traditional over Roth, upcoming changes to 401k accounts, the best retirement accounts for solopreneurs, and much more!
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During this episode we enjoyed a Petit MC by Monday Night Brewing – a big thanks to Ryan for donating this one to the pod! And please help us to spread the word by letting friends and family know about How to Money! Hit the share button, subscribe if you’re not already a regular listener, and give us a quick review in Apple Podcasts or wherever you get your podcasts. Help us to change the conversation around personal finance and get more people doing smart things with their money!
Best friends out!
The discussion is intended to be for general educational purposes and is not tax, legal, or investment advice for any individual. Joel, Matt, and the How to Money podcast do not endorse Sean Mullaney, Mullaney Financial & Tax, Inc. and their services.
