Tax Saving Tips
Learn valuable year-end tax strategies & tips for W-2 employees and small business owners with CPA Mike Jesowshek, CEO of the Small Business Tax Savings Podcast.
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Um, couple of housekeeping items.
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Tara is silently here in the background.
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She's tracking, uh, the text chat.
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Um, we'll be doing q and a at the end.
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She may even send a poll question
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or two for you to answer along the way.
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I'm gonna talk for about 30 minutes, 30 ish minutes,
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and then we'll open it up to q and a
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and you can do a hand raise and we can unmute you
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or you can type your question
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or you can just, uh, uh,
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yell at me via chat, whatever you like.
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So this is my 22nd year going on 23 years now.
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And the longer I'm in this business, the more I, I realize
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how much there is to learn,
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but especially when it comes to taxes.
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Um, I, I googled the tax code this morning
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and it's over 44,000 pages
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and there's over 750 forms and schedules.
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And so it's a very, very complex system.
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Um, probably one of the most complex systems in the world.
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And for a lot of us, there's, you know, there's gold
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that can be mined in there that maybe we're not aware of.
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So today we're gonna go through and,
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and kind of peel back the onion on some of this stuff.
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Um, we're gonna start out really high level,
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and then we're gonna get more granular
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until we get into some, some, some specific strategies.
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And the first part is gonna be more about, um,
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just an overview of taxes.
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Oh, there's my disclaimer.
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I'm not a CPA, I'm not giving tax or legal advice.
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These are just my interpretations.
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Please consult with your tax advisor
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before making any tax related decisions.
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So we're gonna, we're gonna talk about how taxes work, um,
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what extras are included, what you actually pay,
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maximizing deductions and, and some other strategies.
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All right? So we will, we'll get rolling here. Okay.
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The, the biggest, I guess, complaint that I hear
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and I've experienced with taxes is
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I just found out how much I owed.
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And it's a lot more than I thought.
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And so the, the highlight
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of this slide is, you know, we wanna plan.
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So we're not surprised. Um, there are a lot of ways
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to mitigate taxes, but most of which has to be done, um,
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beforehand, right?
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It, there's some stuff you can fund at the last minute,
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but usually you need to do it in
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before the end of the year to try
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to maximize those deductions and opportunities
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and you wanna plan so you're not surprised.
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So here's, um, a couple of brackets.
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The way they work in the US
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and I'm gonna focus, uh,
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these are different ways you're gonna file your taxes,
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but we're gonna focus on either single
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or married filing jointly.
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'cause that's 99% of our clientele.
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So the US tax system is progressive,
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and what that means in short is the more you make,
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the more you pay, both in terms of a dollar amount
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and a percentage, you start out at a very low rate of 10%
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and then it goes to 12 22, 24, 32, 35, 37.
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Now, we'll get into tax history later, but
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although that's more than any of us wanna pay,
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it is actually historically lower than whoops, than
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what we've seen, uh, in the past.
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But just to kind of walk through this,
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because a lot of people get confused
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about their marginal rate,
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which is the highest rate they fall into here,
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and their effective rate,
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which is really like the average rate they pay.
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So a married couple on their first $23,200
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of taxable income is gonna pay 10%.
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Okay, on the next chunk, 23 2 to 94 3,
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they're gonna pay that 10%, that flat amount, 2320,
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and then 12% on everything over the extra.
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So in that, in this case, they're,
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they're in a 12% marginal tax bracket,
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but their effective rate is probably, you know, 11.
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Um, next chunk you get into 22, 24,
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and so on and so on.
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Now you start getting towards the bottom part of that,
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and you'll notice it's, it's getting substantially higher.
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Uh, you'll also know,
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if you look at the single taxpayer rates,
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they're not perfectly half, but,
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but they're roughly, you know, you jump to the next bracket,
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it it right around half of, of the next one.
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Um, so a lot of times there is a, there's a little bit
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of benefit to, to being married from a tax perspective,
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um, but not always.
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Uh, and again, this is based on, so we talk about, well,
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what is this tax debt?
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These ordinary income tax rates are taxed on ordinary
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income, which is essentially anything that is, you know,
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a W2 salary, a a 10 99, uh, tips, bonuses,
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commissions, rents, royalties, short-term capital gains.
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And I wanna make a couple points here.
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Non-qualified dividends and interest income.
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So, um, now
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that savings accounts are actually paying us interest,
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again, keep in mind if you got 5% on a savings
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account, so you got a hundred grand in there, $5,000,
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that's all gonna be taxable at ordinary income.
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So for some of you, you might give up, uh, close
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to 40% of that in taxes.
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And that's why we want to talk about deferral strategies.
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Okay? What's not considered ordinary income. Alright?
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Um, so long-term capital gains
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and qualified dividends, we're gonna talk about this later.
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Um, that's a good one.
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Uh, tax-free income from Roth IRA
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and Roth 401k municipal bond interest.
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Certain types of, of income from
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annuities and life insurance.
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Uh, money from scholarships,
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certain inheritance inheritances or gifts.
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So if somebody, you know, a friend or family
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or someone were to give you $10,000,
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that's not considered ordinary taxable income.
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Um, alimony payments for divorces after 2018.
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Child support payments, most healthcare benefits.
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Um, and there's a few other ones that
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get a little more specific.
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Uh, but those are not considered ordinary income.
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Now, there may be some tax to some of those,
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but for the most part, no.
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Okay, so we talked about ordinary income tax.
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Now we're gonna talk about
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social security and Medicare taxes.
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And again, for those of you still working,
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these are much more applicable.
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Typically, when you're retired
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and you're drawing income, uh, you're drawing your pension,
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you're drawing social security,
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you're drawing from your IRA, social security
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and Medicare taxes don't apply.
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But for those of you who still have earned income, uh,
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you are paying social security and Medicare taxes.
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So for 2023, the limit is 160,000.
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This is slide shows
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twenty twenty four, a hundred sixty eight, six hundred
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of your, your first
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a hundred sixty eight six hundred of income.
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They're gonna take 6.2% from the employee.
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And if you work for an employer,
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the employer pays the other half.
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So if you're self-employed, lucky you, I know there's a few
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of you on this call, you get to pay the full 12.2,
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or excuse me, the 12.4% yourself.
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So that's just shy of $21,000.
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You get to pay to good old social security.
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Now the key here is this is per person.
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So my second point there, if you're a married couple, if
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one person earns 150
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and one person earns a hundred,
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they're gonna take the 6.2% off.
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Both. You don't, you don't, it doesn't stop
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for a married couple at 1 68.
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Um, and then in addition to that, uh,
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we've got Medicare and Medicare starts at 1.45,
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2.9 for the self-employed.
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And there is no cap to Medicare.
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If you make $10 million,
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you pay Medicare on the full 10 million.
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In fact, you'll see some, some brackets down there
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where it actually increases
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and it could be up to, um, uh, a 2.9
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or even 3.8.
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So you start adding all that in there.
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And we've got, you know, up to 37% federal tax rate.
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Um, you've got Medicare, you've got social security, uh,
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but wait, there's more.
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Okay, we got state income taxes.
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So most of you watching are in Michigan.
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Michigan, we have a flat tax, which is 4.25%.
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So, you know, once you get a little bit of a deduction
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and stuff, um, basically it's 4.25%.
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It's, it's fairly straightforward, so it's kind of nice.
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Um, I put Indiana in there, Illinois in there.
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Um, now I don't think we have any clients in
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California or New York.
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Um, but just for sake of understanding the,
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it could be worse factor.
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Both of those states have what they call a progressive tax,
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just like our federal tax.
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So they'll go up to 12.3, they'll go up to 10.9.
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So those are very, very highly taxed states.
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Um, and then on the other side of that,
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there are nine states.
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I put them in here, they don't have any state income tax.
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So Florida, Texas, Alaska, Nevada, New Hampshire,
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South Dakota, Tennessee, Washington
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and Wyoming have no state income tax.
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So I, I just googled this this morning.
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Um, Joe Rogan, who many
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of you know the famous podcaster comedian, uh, uh,
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UFC commentator, he, um,
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makes $30 million a year as a podcaster.
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And I don't know if it was two years ago,
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but a couple years ago he relocated.
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And some of this was political reasons,
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but from California, Southern California to Texas.
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Uh, so he saves $3.7 million a year
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in state income taxes that he used
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to be paying in California.
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And so I'm sure the state of California misses him.
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Um, but you know, some of you watching are retired
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and a lot of our clients we talk about, you know, what,
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if you wanna, um, where are you gonna live in retirement?
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Uh, and now a lot of our folks are in Florida
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and a lot of that is for the weather.
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But yeah, it is nice.
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I mean, once you claim state residency in Florida,
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you can eliminate that 4.25% in Michigan.
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Um, now this question gets asked every year.
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So I'll just mention now, can you just buy a condo down
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there and, and, and, and claim and get that?
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No, you do have to have residency,
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which is typically defined as six months
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or more of living there.
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Um, but once you can do that
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and people do it all the time, you know that
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that is, that is a strategy.
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Uh, i I would say I wouldn't move there just
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for the tax savings.
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It, you know, you want it to be somewhere you wanna live,
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but it is certainly an appealing benefit of, of living and,
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and the state makes a big difference.
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Okay? So just kind of, this is a, a, a paycheck, you know,
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names, uh, blacked out to protect the innocent.
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Um, just to kind of show, you know,
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all these things that come out.
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So this person did max out.
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They were at like, uh, high three hundreds.
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So they maxed out their, that,
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that was the Maxwell security last year.
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Took their, their Medicare,
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they had federal state withholding on there.
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Um, they probably had some time in, in two states,
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'cause they had a little bit of
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Arizona and some Michigan tax.
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So you can see all those,
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all those taxes coming out of there.
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Um, now again, if you're self-employed, it's,
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those numbers are gonna be higher,
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but you get an idea of all the things they take out
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of the paycheck.
253
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Um, 4 0 1 KI do wanna mention 401k contributions.
254
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Um, do not avoid social security and Medicare.
255
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There is, there is no way around that. Okay.
256
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So let's talk about some ways that,
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that we can reduce taxes.
258
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Uh, standard deductions.
259
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So these are the standard deductions for 2023 and 2024.
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What's worth noting here is the tax laws changed, uh,
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in 2020, I'm sorry, 2018.
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And the standard deductions were in essence doubled.
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And the idea there was
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to get most people away from itemizing to try
265
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to simplify this 44,000, uh, tax page, tax code.
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And, and to some degree it's worked.
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About 87% of Americans as
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of A-U-S-A-U-S-A today study in 2020
269
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do take the standard deduction.
270
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Uh, so what does that mean?
271
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Well, if you have a hundred thousand dollars
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of earned income and you're married filing jointly in 2024,
273
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you can check the box, take the standard deduction,
274
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that's going to deduct $29,200 of your income.
275
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And that is not taxable.
276
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And so for most of you, that's a great way to go.
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However, if you have a lot of qualified expenses,
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and that goes beyond the scope of today's discussion,
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you may choose to itemize,
280
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which is simply just listing out all your deductions.
281
00:12:32.805 --> 00:12:34.945
And most good tax preparers will ask you about
282
00:12:34.945 --> 00:12:35.985
this and, and help you.
283
00:12:36.325 --> 00:12:37.865
And if your itemized list
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gets you more deductions than the standard deduction
285
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you can choose itemize.
286
00:12:43.125 --> 00:12:45.705
We itemize every year 'cause we have a, a lot of deductions.
287
00:12:46.125 --> 00:12:49.145
Um, so just wanted to walk through that.
288
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Uh, there are also what's what are called exemptions
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that if you have children
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and your income qualifies,
291
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you may even get some exemptions on there which further
292
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reduce your taxable income.
293
00:13:02.295 --> 00:13:05.505
What else can you do? Well, we've got all kinds
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of pre-tax savings accounts.
295
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So here's the jargon.
296
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401k, 4 0 3 B, 4 57 sep, simple.
297
00:13:13.465 --> 00:13:15.265
IRA deferred compensation plans.
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00:13:16.285 --> 00:13:18.865
One key point with all of these, and
299
00:13:19.065 --> 00:13:23.065
'cause I think this is missed, this is tax deferral.
300
00:13:23.365 --> 00:13:25.745
You're deferring the income tax to later.
301
00:13:26.005 --> 00:13:29.745
It doesn't mean never the government is gonna
302
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want their pound of flush.
303
00:13:31.445 --> 00:13:34.985
So it may make sense to defer that and pay later.
304
00:13:35.525 --> 00:13:38.825
You may be in a lower tax bracket, the word may,
305
00:13:39.525 --> 00:13:41.065
but it is going to be taxable.
306
00:13:41.285 --> 00:13:43.185
And if you don't spend the money, it's gonna be taxable
307
00:13:43.185 --> 00:13:44.265
before it goes to your heirs.
308
00:13:45.305 --> 00:13:48.915
The other side of the fence are these post-tax,
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tax free options such as a Roth 401k.
310
00:13:52.375 --> 00:13:55.035
Now there's a Roth 4 0 3 B and a Roth IRA.
311
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They're all different plans,
312
00:13:56.935 --> 00:13:58.635
but they work the same in the sense
313
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that you don't get a deduction now,
314
00:14:00.895 --> 00:14:02.755
but the money grows tax deferred,
315
00:14:02.975 --> 00:14:04.635
you don't pay any tax on the growth
316
00:14:05.375 --> 00:14:09.275
and you get the distribution, the gain tax free.
317
00:14:10.175 --> 00:14:12.395
So you're kind of balancing the, uh,
318
00:14:12.695 --> 00:14:14.235
the two sides of the coin there.
319
00:14:15.985 --> 00:14:18.925
Uh, here are some of the limits for 2024.
320
00:14:19.225 --> 00:14:21.445
And this is probably gonna look like a bunch of googly gunk,
321
00:14:21.665 --> 00:14:23.685
but I'll just point out a couple of highlights.
322
00:14:23.875 --> 00:14:26.405
4 0 1 Ks this year. 23,000.
323
00:14:26.865 --> 00:14:30.765
For those of you 50 and older, you've got a $7,500 catch up.
324
00:14:30.765 --> 00:14:34.965
So you can personally put in up to 30,500 into your 401k.
325
00:14:35.185 --> 00:14:38.205
That's a great way to save for retirement.
326
00:14:38.255 --> 00:14:40.245
Defer taxes, the whole nine,
327
00:14:40.715 --> 00:14:43.085
that does not include your company maps.
328
00:14:43.085 --> 00:14:46.485
So if you work for an employer, they can go up to that.
329
00:14:46.545 --> 00:14:49.165
If you're a sole employer, you can actually, uh,
330
00:14:49.315 --> 00:14:52.645
it's $69,000, uh, this year plus a catch up.
331
00:14:53.145 --> 00:14:56.685
Uh, again, you know, you've got things like IRAs, subject
332
00:14:56.785 --> 00:15:00.045
to income restrictions, uh, $7,000
333
00:15:00.345 --> 00:15:02.725
for those under $58,000
334
00:15:02.785 --> 00:15:05.845
for those over 54 50 sevens
335
00:15:05.845 --> 00:15:09.485
or the 4 0 3 Bs, which is the kind of the um, uh,
336
00:15:09.485 --> 00:15:11.525
nonprofit version of the 401k.
337
00:15:12.395 --> 00:15:13.895
Uh, same and similar limit.
338
00:15:17.105 --> 00:15:20.395
Okay, so we're gonna look at a scenario,
339
00:15:21.095 --> 00:15:22.195
and this is,
340
00:15:22.615 --> 00:15:26.115
is a household couple under 65 making
341
00:15:26.555 --> 00:15:28.635
$150,000 each.
342
00:15:29.015 --> 00:15:33.645
See if my hyperlink works. Oh, here we go. Good job, Tara.
343
00:15:34.075 --> 00:15:36.085
Alright, and this may be small print.
344
00:15:36.085 --> 00:15:37.725
Let's see if I can make this a little bigger.
345
00:15:39.435 --> 00:15:41.055
Uh, so the first scenario,
346
00:15:41.555 --> 00:15:46.135
the couple makes no retirement contributions, uh, $300,000.
347
00:15:46.445 --> 00:15:48.255
They take the standard deduction.
348
00:15:48.805 --> 00:15:51.935
They have 270,000 of taxable income.
349
00:15:52.245 --> 00:15:56.775
They pay $51,527 in federal tax.
350
00:15:57.685 --> 00:16:00.835
Their marginal rate, highest effective rate is 24.
351
00:16:01.365 --> 00:16:03.275
Their average rate is 19.
352
00:16:04.015 --> 00:16:05.155
And if I keep going down,
353
00:16:05.215 --> 00:16:09.395
we can see then they've got another $12,282 in
354
00:16:09.605 --> 00:16:10.715
state income taxes.
355
00:16:11.905 --> 00:16:13.635
Okay, so 51
356
00:16:13.895 --> 00:16:18.675
and 12 roughly, they're at $63,000 in change.
357
00:16:19.795 --> 00:16:22.165
Okay? Same couple,
358
00:16:22.865 --> 00:16:26.445
but they decide to maximize their 4 0 1 Ks.
359
00:16:27.255 --> 00:16:29.355
Uh, assuming they have that ability, they do.
360
00:16:29.655 --> 00:16:31.955
So that's gonna be $46,000,
361
00:16:34.015 --> 00:16:36.425
therefore they're taxable wages
362
00:16:36.425 --> 00:16:39.625
because that comes off now become 254,000.
363
00:16:40.465 --> 00:16:43.435
Okay? So that 46 comes right off the top, um,
364
00:16:44.705 --> 00:16:45.765
by paying themselves.
365
00:16:45.985 --> 00:16:48.565
Now, they've reduced same standard deduction.
366
00:16:48.865 --> 00:16:51.365
Now their total tax is $40,000.
367
00:16:51.665 --> 00:16:54.685
So they just shaved $11,000 off their tax bill.
368
00:16:55.735 --> 00:16:59.825
They did the, the trade off is they, they set aside,
369
00:16:59.825 --> 00:17:01.225
they didn't spend that extra money.
370
00:17:01.225 --> 00:17:03.065
They set aside $46,000,
371
00:17:03.685 --> 00:17:06.545
but they shaved it right off their tax bill
372
00:17:07.285 --> 00:17:09.625
and reduce their Michigan State tax a little bit
373
00:17:11.335 --> 00:17:12.435
by about $2,000.
374
00:17:13.825 --> 00:17:17.975
Third option, same couple, uh, $300,000,
375
00:17:18.155 --> 00:17:19.895
but we'll say they own a small business.
376
00:17:20.395 --> 00:17:23.055
And so through a bunch of strategies of deductions
377
00:17:23.665 --> 00:17:27.455
maximizing 4 0 1 Ks, et cetera, they get their tax bill
378
00:17:27.455 --> 00:17:28.615
and income down to one 50.
379
00:17:30.615 --> 00:17:34.265
They're at 16,000 6 82 in taxes
380
00:17:34.925 --> 00:17:36.585
versus the original 51.
381
00:17:37.345 --> 00:17:39.645
So you can really see how, you know,
382
00:17:39.645 --> 00:17:41.365
being strategic about this can,
383
00:17:41.425 --> 00:17:43.645
can really make a difference in your bottom line.
384
00:17:44.505 --> 00:17:45.565
Uh, here was the numbers.
385
00:17:45.625 --> 00:17:49.165
The first one, the total was 63 8 0 9, state and federal.
386
00:17:49.985 --> 00:17:53.885
The second one, uh, saved 21%, $13,000.
387
00:17:54.425 --> 00:17:58.445
The third one paid $40,000 less in tax.
388
00:17:59.225 --> 00:18:02.525
So again, the key takeaway to be strategic about it,
389
00:18:02.625 --> 00:18:06.205
you know, pay is, is a little as legally possible
390
00:18:06.585 --> 00:18:08.965
and really explore the code to get opportunities.
391
00:18:09.065 --> 00:18:11.565
And if, and if you're not aware of it, then then talk
392
00:18:11.565 --> 00:18:12.805
to some folks who are,
393
00:18:16.315 --> 00:18:17.685
okay, additional strategies.
394
00:18:18.065 --> 00:18:19.885
Uh, health savings account, you know,
395
00:18:20.185 --> 00:18:21.565
we don't talk enough about this.
396
00:18:21.715 --> 00:18:23.885
This is probably like the eighth wonder of the world.
397
00:18:24.385 --> 00:18:26.045
It is the only thing you can do
398
00:18:26.495 --> 00:18:28.565
where you can get a deduction going in.
399
00:18:28.985 --> 00:18:30.245
You can get tax deferral
400
00:18:30.465 --> 00:18:32.445
and you can get it tax free on the backside.
401
00:18:32.785 --> 00:18:34.885
Now the caveat is you have to have a,
402
00:18:35.045 --> 00:18:36.685
a high deductible health plan to qualify,
403
00:18:37.345 --> 00:18:39.925
but if you do, uh, these are no-brainers.
404
00:18:40.225 --> 00:18:43.495
Um, I mean you can put money in, get the deduction,
405
00:18:43.995 --> 00:18:45.855
you don't have to take it at a certain age.
406
00:18:45.855 --> 00:18:48.135
You can let it grow. You can do all kinds of great things.
407
00:18:48.615 --> 00:18:50.135
Excellent, excellent idea. A lot
408
00:18:50.135 --> 00:18:53.455
of places now are also allowing you to invest that money.
409
00:18:53.475 --> 00:18:55.015
So if you're gonna build the account instead
410
00:18:55.015 --> 00:18:55.975
of just putting it into savings,
411
00:18:56.075 --> 00:18:57.055
you can put it in the market.
412
00:18:57.925 --> 00:18:59.455
It's a really, really cool feature.
413
00:19:00.115 --> 00:19:01.415
Uh, flex spending accounts.
414
00:19:01.915 --> 00:19:05.655
So these are not h uh, health savings accounts.
415
00:19:05.995 --> 00:19:07.215
Um, you can put up
416
00:19:07.215 --> 00:19:10.695
to 3,200 a year in the key there is you have to use it
417
00:19:10.755 --> 00:19:12.095
for the most part within the year.
418
00:19:12.715 --> 00:19:16.015
Um, but a, you know, a no brainer for this is if you're,
419
00:19:16.155 --> 00:19:18.015
you know, you have kids and they're in daycare
420
00:19:18.275 --> 00:19:20.455
and you're spending thousands of dollars a year on daycare,
421
00:19:21.515 --> 00:19:23.295
put that money in a flex spending account,
422
00:19:23.715 --> 00:19:25.655
and then use a flex spending to pay for the daycare.
423
00:19:25.795 --> 00:19:26.815
And you're essentially paying
424
00:19:26.815 --> 00:19:28.735
for your daycare on a pre-tax basis.
425
00:19:29.875 --> 00:19:31.455
Uh, and then five 20 nines.
426
00:19:31.455 --> 00:19:32.975
Again, not gonna get into the weeds.
427
00:19:32.975 --> 00:19:34.255
I think a lot of you're familiar with that,
428
00:19:34.315 --> 00:19:36.615
but this is, you know, college savings plan
429
00:19:36.615 --> 00:19:39.975
that works like a Roth, IRA, uh, you can also use it for,
430
00:19:40.515 --> 00:19:43.335
um, um, primary school up
431
00:19:43.335 --> 00:19:45.415
to $10,000 a year, kind of a new rule.
432
00:19:45.915 --> 00:19:47.975
And, and those are good strategies to look at.
433
00:19:49.695 --> 00:19:52.225
Okay, I told you I'd come back to this, this,
434
00:19:52.575 --> 00:19:54.145
this capital gains taxes.
435
00:19:55.245 --> 00:19:58.185
So we're gonna call this an after-tax investment account.
436
00:19:58.865 --> 00:20:02.345
A KAA managed account, a KAA brokerage account.
437
00:20:02.795 --> 00:20:03.985
Let's just keep it simple.
438
00:20:04.215 --> 00:20:08.425
It's not an IRA, it could be in, in, in John Smith's name,
439
00:20:08.455 --> 00:20:10.545
Jane Smith's name, Jane and John Smith.
440
00:20:10.545 --> 00:20:12.545
Joint tenants, the John Smith Trust.
441
00:20:12.865 --> 00:20:15.185
Whatever, it's, it's not an IRA, it's not a 401k,
442
00:20:15.185 --> 00:20:17.385
it's just a, a a, a brokerage account.
443
00:20:18.765 --> 00:20:21.945
The big advantage you have of this, in addition to the fact
444
00:20:21.945 --> 00:20:24.345
that you can make a very good return in equities over the
445
00:20:24.345 --> 00:20:28.425
long term, is if you're invested in equities, stocks,
446
00:20:29.165 --> 00:20:32.225
um, you have two ways they grow, right?
447
00:20:32.255 --> 00:20:34.025
They grow by capital appreciation,
448
00:20:34.025 --> 00:20:36.745
which is you buy the stock at $10, it grows to $12.
449
00:20:37.085 --> 00:20:41.145
That's growth. And, and then you have dividends.
450
00:20:41.685 --> 00:20:44.545
And dividends is, you know, can be taxable.
451
00:20:44.885 --> 00:20:47.405
But a lot of growth stocks don't pay a lot of dividends
452
00:20:48.175 --> 00:20:49.395
and they get their growth a lot
453
00:20:49.395 --> 00:20:51.395
of times from the share price appreciating.
454
00:20:52.135 --> 00:20:54.315
Now in that scenario, you don't pay any tax
455
00:20:54.815 --> 00:20:56.675
unless you sell the stock, right?
456
00:20:56.735 --> 00:20:58.035
So for a lot of you, you're not gonna
457
00:20:58.035 --> 00:20:59.235
sell the stock until later.
458
00:21:00.055 --> 00:21:01.795
And if you hold it 12 months
459
00:21:01.795 --> 00:21:03.595
or longer, the sale of
460
00:21:03.595 --> 00:21:05.995
that is considered a long-term capital gain.
461
00:21:06.375 --> 00:21:09.795
So this is 2024 long-term capital gains rates, uh,
462
00:21:09.925 --> 00:21:14.275
let's focus on this married joint at the 15% here.
463
00:21:14.335 --> 00:21:18.355
So this in encapsules a lot of people, if you're
464
00:21:18.355 --> 00:21:22.235
between 94,580 3000, you only pay 15%
465
00:21:23.165 --> 00:21:27.425
versus what could be 37% for ordinary income.
466
00:21:28.235 --> 00:21:31.175
If you can get under 94,000, you don't pay anything.
467
00:21:31.675 --> 00:21:34.455
And even if you're, you know, very, very, you know,
468
00:21:34.845 --> 00:21:38.255
high income, 37%, the maximum rate right now is 20%.
469
00:21:38.755 --> 00:21:41.175
So many of you may have heard the comment over the years,
470
00:21:41.195 --> 00:21:42.415
Warren Buffet says, well,
471
00:21:42.415 --> 00:21:45.095
my secretary pays more in taxes than I do.
472
00:21:45.995 --> 00:21:49.615
The truth of that statement is his secretary pays a higher
473
00:21:49.795 --> 00:21:51.095
tax rate than he does
474
00:21:51.095 --> 00:21:52.895
because he gets most of his wealth
475
00:21:52.895 --> 00:21:55.495
through capital gains sales, which is a maximum of 20%.
476
00:21:55.915 --> 00:21:57.855
And I would assume Warren Buffet's secretary is,
477
00:21:57.925 --> 00:21:59.295
it's probably in a 24
478
00:21:59.315 --> 00:22:02.495
to 37% tax bracket, probably paid quite well.
479
00:22:02.955 --> 00:22:04.735
So that's, that's what he was inferring to.
480
00:22:05.565 --> 00:22:09.585
So again, the brokerage account, um, great, great option.
481
00:22:10.005 --> 00:22:12.945
And you know, there's no minimums, there's no maximums.
482
00:22:13.405 --> 00:22:15.825
Um, you can build this money and accumulate
483
00:22:15.845 --> 00:22:19.185
and then kind of control your taxes to some degree
484
00:22:19.805 --> 00:22:20.865
for, for down the road.
485
00:22:23.185 --> 00:22:24.645
Uh, two other strategies,
486
00:22:24.705 --> 00:22:28.245
and again, just just sort of high level deferred annuities.
487
00:22:28.545 --> 00:22:30.805
Um, these are gonna offer tax deferral.
488
00:22:31.515 --> 00:22:34.205
They are predominantly, I'll say for retirement only
489
00:22:34.205 --> 00:22:36.645
because you can't really touch that money to 59 and a half
490
00:22:36.665 --> 00:22:37.685
or you have penalties.
491
00:22:38.145 --> 00:22:41.405
Um, but right now with interest rates, we can get 5% plus.
492
00:22:42.025 --> 00:22:44.685
Uh, and people are asking a lot about CDs.
493
00:22:44.705 --> 00:22:47.765
I'm not a big CD fan. Here's, here's the big difference.
494
00:22:47.825 --> 00:22:50.645
If you did a deferred annuity, you get the 5%
495
00:22:50.785 --> 00:22:52.725
and you don't pay the tax every year.
496
00:22:53.225 --> 00:22:55.965
So you get additional growth by not having to pay that tax.
497
00:22:56.425 --> 00:22:58.445
You get 5% in a savings account.
498
00:22:59.325 --> 00:23:02.835
Let's say you're in a, you're in a 35% tax bracket,
499
00:23:03.335 --> 00:23:06.995
you know, your net is closer to 3.5% after you pay the tax.
500
00:23:07.055 --> 00:23:09.595
So every year you get that 10 99 from that,
501
00:23:09.595 --> 00:23:11.715
that interest taxable from that CD
502
00:23:11.715 --> 00:23:13.955
or that savings, you're not getting the
503
00:23:13.955 --> 00:23:15.115
full, the full benefit there.
504
00:23:16.015 --> 00:23:17.995
Uh, another one is permanent life insurance.
505
00:23:19.015 --> 00:23:22.205
Lot of caveats to this.
506
00:23:22.205 --> 00:23:24.885
One has to be done correctly, has to be funded correctly.
507
00:23:25.425 --> 00:23:28.885
Um, you know, generally this is gonna be for higher earners
508
00:23:28.905 --> 00:23:31.045
who are already maxing out other plans.
509
00:23:31.505 --> 00:23:34.005
Um, but you can generate a, a pretty nice rate
510
00:23:34.005 --> 00:23:35.885
of return on these if they're structured correctly.
511
00:23:36.505 --> 00:23:38.885
Uh, many states they're also credited, protected.
512
00:23:39.305 --> 00:23:42.045
You don't have to wait till 59 and a half to get the money.
513
00:23:43.025 --> 00:23:45.525
And in, in most of the programs,
514
00:23:45.525 --> 00:23:46.845
depending on which one you're using,
515
00:23:47.115 --> 00:23:48.485
they're never gonna go backwards.
516
00:23:48.745 --> 00:23:51.085
So they don't have that market risk component to 'em.
517
00:23:53.135 --> 00:23:55.825
Okay, so, uh, let's get into
518
00:23:57.355 --> 00:23:58.515
retirees now, right?
519
00:23:58.655 --> 00:24:00.675
Uh, you're retired and you're still paying taxes.
520
00:24:01.175 --> 00:24:03.555
Yes you are. And, and you know, it's that old expression.
521
00:24:03.555 --> 00:24:05.875
Nothing is certain except death and taxes.
522
00:24:06.735 --> 00:24:08.795
Um, yes, that is very true.
523
00:24:10.055 --> 00:24:12.475
So this is where I wanna come back and,
524
00:24:12.475 --> 00:24:13.595
and do a little bit of history.
525
00:24:13.655 --> 00:24:15.995
And this is one of my favorite nerdy charts.
526
00:24:16.535 --> 00:24:18.875
Um, what you see on the right here is the
527
00:24:18.875 --> 00:24:20.075
history of income tax rates.
528
00:24:20.535 --> 00:24:23.835
And, and in the seventies, up through the mid eighties, some
529
00:24:23.835 --> 00:24:26.835
of you may remember this, the highest bracket was 70%
530
00:24:27.015 --> 00:24:28.995
and there were over 15 different brackets.
531
00:24:29.655 --> 00:24:31.675
And since then, you know, we've had changes.
532
00:24:31.775 --> 00:24:33.595
But we've predominantly, if I were to draw a line,
533
00:24:33.595 --> 00:24:37.915
we've come down, highest bracket was 39 20 18 cuts
534
00:24:37.915 --> 00:24:38.955
that made it down to 37.
535
00:24:39.335 --> 00:24:41.675
And there were about five brackets, okay?
536
00:24:42.335 --> 00:24:45.235
At the same time, this little red line,
537
00:24:45.865 --> 00:24:47.835
this is the national debt, okay?
538
00:24:48.765 --> 00:24:52.755
And so what, what I would submit to you
539
00:24:53.375 --> 00:24:55.275
is this is where tax rates were.
540
00:24:55.825 --> 00:24:57.075
This is where they are.
541
00:24:58.015 --> 00:25:00.635
Do you think they will go down, go up
542
00:25:00.735 --> 00:25:01.875
or stay the same in the future?
543
00:25:03.235 --> 00:25:04.995
I don't know any anything's possible,
544
00:25:05.695 --> 00:25:08.355
but the, you know, the assumption of the,
545
00:25:08.915 --> 00:25:10.875
everyone will be in a lower tax bracket than
546
00:25:10.875 --> 00:25:12.075
they re when they retire.
547
00:25:13.455 --> 00:25:15.655
I would question that it's gonna work for some people.
548
00:25:16.135 --> 00:25:17.495
I don't think it's gonna work for everybody.
549
00:25:17.595 --> 00:25:20.015
And that's why you kind of wanna plan money on
550
00:25:20.015 --> 00:25:21.095
both sides of the line.
551
00:25:21.115 --> 00:25:25.375
You know, some deferred pre-tax, 4 0 1 KIA,
552
00:25:25.805 --> 00:25:28.855
some tax free, is it Ross Insurances, et cetera.
553
00:25:29.795 --> 00:25:32.455
Uh, okay, back to the slide.
554
00:25:32.755 --> 00:25:36.295
Um, where you get income in retirement matters
555
00:25:36.715 --> 00:25:38.735
and how you layer that in structure matters.
556
00:25:39.195 --> 00:25:40.215
I'm gonna give you an example,
557
00:25:40.755 --> 00:25:43.415
but let's just walk through some of these income sources.
558
00:25:43.855 --> 00:25:48.675
Pensions, some of you have 'em, um, federal employees,
559
00:25:49.395 --> 00:25:51.875
teachers, firemen, policemen, uh,
560
00:25:52.265 --> 00:25:54.315
very few corporate corporations these days,
561
00:25:54.315 --> 00:25:55.515
but some of you have pensions.
562
00:25:55.655 --> 00:25:57.995
Uh, all our electrician friends, God bless you.
563
00:25:58.455 --> 00:26:02.235
Uh, not very nice pensions, a hundred percent taxable. Okay?
564
00:26:03.105 --> 00:26:04.835
IRAs 4 0 1 Ks, 4 0 3 Bs.
565
00:26:05.065 --> 00:26:08.605
Taxable social security benefits up to 85%.
566
00:26:08.955 --> 00:26:13.165
Taxable rental income, taxable gonna go work part-time
567
00:26:13.875 --> 00:26:16.085
taxable income, and you'll probably pay some FICA
568
00:26:16.925 --> 00:26:18.245
required minimum distributions.
569
00:26:18.555 --> 00:26:21.085
What are those? When you hit your mid seventies now
570
00:26:21.385 --> 00:26:24.005
and they make you start taking money out of your IRAs,
571
00:26:24.005 --> 00:26:26.695
4 0 1 Ks and you gotta pay taxes on it.
572
00:26:27.635 --> 00:26:32.355
So these are all taxables, okay? Uh, what does that mean?
573
00:26:33.605 --> 00:26:37.115
Well, we're gonna go with Grandpa John and grandma.
574
00:26:37.305 --> 00:26:41.895
Grandma Jane. Scenario one, they want a retirement income
575
00:26:41.895 --> 00:26:43.205
of 150,000 a year.
576
00:26:43.555 --> 00:26:46.605
They get $70,000 from Social Security.
577
00:26:47.365 --> 00:26:50.015
They take $80,000 from their IRAs.
578
00:26:50.065 --> 00:26:54.735
Their net after tax is 13,690. Um, not bad.
579
00:26:54.985 --> 00:26:57.855
Total taxes of $15,000, only 10%.
580
00:26:58.515 --> 00:27:02.935
Um, but, and I, I had this hyperlink
581
00:27:08.465 --> 00:27:11.445
or maybe I don't, uh, if we did another scenario,
582
00:27:12.605 --> 00:27:14.375
same couple, same gross income,
583
00:27:14.375 --> 00:27:18.815
but this time on, uh, from their $80,000, uh,
584
00:27:19.065 --> 00:27:22.035
40, this has a typo in it.
585
00:27:22.035 --> 00:27:23.555
So this time they want $80,000.
586
00:27:23.865 --> 00:27:26.155
Only 40 of it comes from a taxable.
587
00:27:26.235 --> 00:27:27.235
IRA 40
588
00:27:27.255 --> 00:27:31.075
of it comes from tax resources like a Roth or something like that.
589
00:27:31.945 --> 00:27:36.055
This is gonna reduce the amount of social security
590
00:27:36.055 --> 00:27:38.575
that's taxable by over 27,000
591
00:27:38.765 --> 00:27:40.535
because there's a special threshold for that.
592
00:27:40.995 --> 00:27:45.135
So the same couple, uh, taxes owe drop from 15,000
593
00:27:45.195 --> 00:27:47.215
to only 43 42.
594
00:27:47.595 --> 00:27:49.815
So that's a 60% reduction in taxes,
595
00:27:50.045 --> 00:27:54.375
roughly an extra $11,000 in their pocket every year
596
00:27:54.995 --> 00:27:57.975
or, or not paid to the IRS every year in retirement.
597
00:27:58.595 --> 00:28:01.495
Now the point of this is just to illustrate that
598
00:28:01.495 --> 00:28:05.015
where you draw your money from in retirement matters and,
599
00:28:05.115 --> 00:28:07.015
and it's important that it's not as simple
600
00:28:07.035 --> 00:28:08.215
as just splitting a switch.
601
00:28:08.275 --> 00:28:10.815
You can't just, um, convert these.
602
00:28:11.445 --> 00:28:14.135
Technically you could convert almost everything in a year,
603
00:28:14.315 --> 00:28:15.935
but you'd pay a monster tax bill.
604
00:28:15.955 --> 00:28:17.775
So a lot of times it's important
605
00:28:17.775 --> 00:28:19.655
to have these discussion years in advance
606
00:28:20.035 --> 00:28:23.175
and strategically move money over, over time
607
00:28:24.035 --> 00:28:26.975
to just give yourself the as many options and,
608
00:28:27.235 --> 00:28:29.135
and things in retirement as possible
609
00:28:29.135 --> 00:28:30.815
because the tax code's gonna change.
610
00:28:31.155 --> 00:28:33.455
And that's the one thing we know it is gonna change.
611
00:28:33.515 --> 00:28:35.455
And that's why we look at this every single year.
612
00:28:35.755 --> 00:28:37.375
Run numbers every single year for folks.
613
00:28:38.945 --> 00:28:41.035
Okay, a couple other pitfalls
614
00:28:41.075 --> 00:28:43.035
and then I'm gonna open it up to questions
615
00:28:43.295 --> 00:28:44.875
and uh, we'll see.
616
00:28:44.935 --> 00:28:46.835
You guys can stump me. It probably won't take much.
617
00:28:47.505 --> 00:28:48.635
Corporate executives.
618
00:28:48.735 --> 00:28:52.355
Uh, we, we work with a handful of Stryker folks, um,
619
00:28:52.655 --> 00:28:55.435
and some other corporate executives, um, around the country.
620
00:28:56.055 --> 00:28:57.755
And if you're an executive, you know, one
621
00:28:57.755 --> 00:29:01.995
of the benefits is an nice bonus sometimes and stock options
622
00:29:01.995 --> 00:29:04.995
and RSUs and with a lot of these companies,
623
00:29:05.065 --> 00:29:07.635
they typically are not going to withhold enough tax.
624
00:29:08.015 --> 00:29:11.675
Um, Stryker for example, always withholds about 22% tax
625
00:29:12.215 --> 00:29:13.755
and from almost everyone, that's,
626
00:29:13.755 --> 00:29:14.755
that's nowhere near enough.
627
00:29:15.175 --> 00:29:17.675
And so if you're not proactive, you end up
628
00:29:17.715 --> 00:29:19.875
with a really big tax bill on penalties at the end.
629
00:29:20.055 --> 00:29:22.075
And so planning ahead is really, really important.
630
00:29:23.035 --> 00:29:25.015
Uh, another one is business owners.
631
00:29:25.595 --> 00:29:27.175
You know, if you sell your business
632
00:29:27.195 --> 00:29:29.655
or have a monster income year, you get ready
633
00:29:29.655 --> 00:29:33.135
for a monster tax bill un unless you can do some planning
634
00:29:33.155 --> 00:29:35.135
and avoid it and, and getting out in front of it.
635
00:29:36.195 --> 00:29:40.015
And then the retirees, um, this one we have all the time.
636
00:29:40.135 --> 00:29:42.925
I always tell everybody, and, and please take me up on it.
637
00:29:42.925 --> 00:29:44.925
If you're gonna want a chunk of money, it's your money,
638
00:29:45.425 --> 00:29:46.445
but please call us
639
00:29:46.445 --> 00:29:48.325
and let's talk about where to take it from
640
00:29:48.675 --> 00:29:51.045
because certain things, like I showed you
641
00:29:51.045 --> 00:29:53.885
that example a minute ago where you take the money matters
642
00:29:53.985 --> 00:29:56.005
and sometimes, you know, you may not think about it like,
643
00:29:56.005 --> 00:29:59.205
oh, well I wanna grab 25,000 for this one time vacation
644
00:29:59.505 --> 00:30:00.605
or this one-off expense.
645
00:30:01.185 --> 00:30:03.725
It can, it can really bump up all your
646
00:30:03.725 --> 00:30:04.965
taxes if you're not careful.
647
00:30:05.825 --> 00:30:08.685
And then there's a really sneaky little deal that some
648
00:30:08.685 --> 00:30:12.565
of you, uh, are in, uh, this Irma Medicare surcharge
649
00:30:12.565 --> 00:30:15.605
where if you make too much income, it can have you paying up
650
00:30:15.605 --> 00:30:19.245
to an extra $400 plus a month for, for your Medicare.
651
00:30:20.265 --> 00:30:23.085
So, um, again, just be mindful of those.
652
00:30:23.465 --> 00:30:25.165
Um, they're, they're very specific
653
00:30:25.305 --> 00:30:27.645
so there's not a general one size fits all advice,
654
00:30:27.945 --> 00:30:30.325
but it's something we'd be happy to, to discuss with you.
655
00:30:32.135 --> 00:30:34.185
Okay. Alright, we whip through that.
656
00:30:34.685 --> 00:30:38.345
Uh, I'm gonna stop the screen share
657
00:30:38.345 --> 00:30:42.065
and uh, Tara, I don't know if you wanna open up the lines.
658
00:30:43.115 --> 00:30:44.615
We will see if there's any questions
659
00:30:45.035 --> 00:30:46.055
and we'll go from there.
660
00:31:09.435 --> 00:31:12.115
I must have just answered every question ever known on
661
00:31:12.115 --> 00:31:13.155
the face of the earth for taxes.
662
00:31:19.355 --> 00:31:22.395
I have a question, Ryan, what is the, um,
663
00:31:23.055 --> 00:31:24.355
income limit for the Roth?
664
00:31:24.455 --> 00:31:27.115
You had mentioned that, um, income limits apply
665
00:31:27.215 --> 00:31:29.715
for contributing to a Roth and I'm curious what that is.
666
00:31:30.275 --> 00:31:31.965
Yeah, great question. And uh,
667
00:31:32.065 --> 00:31:33.325
you got me right outta the gate.
668
00:31:33.325 --> 00:31:37.045
It's like I gotta Google it. It is, it is around 200,000.
669
00:31:37.955 --> 00:31:39.655
Uh, I need to google the exact number,
670
00:31:39.715 --> 00:31:42.255
but for a married couple that's around 200,000
671
00:31:42.275 --> 00:31:44.095
for a single person, it's about half that.
672
00:31:44.925 --> 00:31:49.295
However, there are strategies if you're over that,
673
00:31:49.295 --> 00:31:50.815
which a lot of our clients are,
674
00:31:51.355 --> 00:31:53.095
and it may not work for everybody,
675
00:31:53.155 --> 00:31:54.655
but it's called a backdoor Roth.
676
00:31:54.875 --> 00:31:57.335
And it's, it's probably beyond explaining in this webinar,
677
00:31:58.035 --> 00:32:01.255
but just because you're over the threshold doesn't mean you
678
00:32:01.255 --> 00:32:03.655
can't do a Roth IRA in a sense.
679
00:32:04.475 --> 00:32:06.495
You just have to be a little more strategic about it.
680
00:32:06.495 --> 00:32:07.775
There's a, there's a few steps
681
00:32:08.245 --> 00:32:10.895
that still allows most people to be able to do it.
682
00:32:11.435 --> 00:32:12.495
And I also wanna mention,
683
00:32:12.895 --> 00:32:16.655
'cause you brought up the question that does not apply in,
684
00:32:16.655 --> 00:32:17.895
in a 401k.
685
00:32:18.275 --> 00:32:23.135
So, so a lot of employer plans now are offering Roth 401k
686
00:32:23.135 --> 00:32:24.215
or Roth 4 0 3 B.
687
00:32:24.715 --> 00:32:27.975
The great thing about those plans, there is no income limit.
688
00:32:28.555 --> 00:32:29.575
So people have been like,
689
00:32:29.575 --> 00:32:31.415
well I saw I had the Roth in my 4 0 1,
690
00:32:31.415 --> 00:32:32.535
but I make too much money for that.
691
00:32:32.645 --> 00:32:34.335
Doesn't matter. Doesn't matter.
692
00:32:34.555 --> 00:32:38.735
Um, inside of 401k, there is no income limit like there is
693
00:32:38.735 --> 00:32:40.805
for a traditional Roth IRA.
694
00:32:40.985 --> 00:32:42.765
So good question Tara. Thank you.
695
00:33:00.275 --> 00:33:03.135
Oh, well, I'm gonna assume everybody is, is just shy
696
00:33:03.395 --> 00:33:06.615
and I, I know the participants on here have our information
697
00:33:06.795 --> 00:33:09.815
so, um, if we don't have other
698
00:33:10.015 --> 00:33:11.215
questions, I'm gonna wind it up.
699
00:33:11.315 --> 00:33:12.655
Let everybody get back to their lunch.
700
00:33:13.395 --> 00:33:16.215
As always, we are here as a resource for you,
701
00:33:16.245 --> 00:33:17.295
your family and friends.
702
00:33:17.395 --> 00:33:19.175
Please don't hesitate to reach out.
703
00:33:19.755 --> 00:33:23.455
Um, if you would like a copy of this video, please reach out
704
00:33:23.455 --> 00:33:26.375
to Tara or this recording rather and we can get you that.
705
00:33:26.835 --> 00:33:28.535
And, uh, hope you all enjoy the rest of your day.
706
00:33:28.555 --> 00:33:30.415
Thanks for tuning in, spending some time with us.