Top Tax Moves to Make Before 2023

fair share. So in this episode, I'm going to walk through some of the key strategies that you need to think about before the end of the year, to make that happen. Now, here's the deal. December 31, is coming. And once you cross that line, a lot of these strategies will not work, and your options go away. So let's get this in play. Let's keep more money in our pocket book to go into the next year. This is about financial freedom. This is about protecting your wealth. This is about protecting

your financial future. I'll see you in the episode. And welcome to this episode of the affluent Entrepreneur Show. Cheers. This is the affluent Entrepreneur Show for entrepreneurs that want to operate at a high level and achieve financial liberation. I'm your host, Mel Abraham, and I'll be sharing with you what it takes to create success beyond wealth. So you can have a richer, more fulfilling lifestyle. In this show, you'll learn how business and money

intersect. So you can scale your business, scale your money, and scale your life, while creating a deeper impact and living with complete freedom. Because that's what it really means to be an entrepreneur. All right, this is a topic about as fun as a root canal at the dentist, so I totally get it. But here's what I want you to know, I want you to look at this topic through the eyes of how we can keep more money in our own

pockets. Because the more we can keep in our pockets, the more we can accelerate our Path to Wealth and financial freedom. And the fact of the matter is, is that taxes is a fact of life, whether you're an employee or a business. So the real question is, how can we legally reduce our tax by the tax burden as much as possible, so we can keep the most possible in our pocketbook in our wallet, in our

financial future? So So in this episode, I'm going to walk you through some key strategies, I'll talk you through them, and some of them may apply. Some of them may not apply. But the key here is is I want you to consider each and every one of them, I want you to look at it and say, Does this apply to me? Should I consider it and then I want you to talk to your tax professional. So here's my cya. I am not your advisor. This is about education and information.

I don't know your circumstances, I don't know your tax situation. So I want you to take this information, I want you to sit with your advisor, the one that knows what you're doing and where you're at. So they can give you more specific detailed instructions. In the meantime, let's jump in, because time is running out. So these provisions are things that you can consider as we move forward. But here's the steps I want you to take. And I'm gonna jump to the iPad

here. And we'll start out with this is that the first thing everyone should be doing. If you have not, if you have not had a call with your CPA with your tax professional, the person that is working on this, then you need to reach out to them, they should be calling you but most of them don't, I want you to be proactive because like I said, 30% to 50% bite on your income. I want to reduce that as much as

possible. And so one of the first things that you that we need to do is this is that every one of my clients are the people that I work with in my elite, which are my one on one clients, which I don't take on a lot, or even in my master's program, I tell them that it's time to review your income.

See, if we don't know where your income is, if we don't know how much you've made, then we can't really project things in too often what happens is that we wait till after the end of the year to even think about this. But when we know where we're at on income, then we have the ability to then do some planning. And so we look at the income which also requires you to look at your expenses.

Because especially when you have a business, what ends up happening is that remember in and I did this in another episode we'll hook it up in the show notes. But the bottom line is that if you're running a business, you have revenues that come in, you have expenses that go out you have this Net, after, you know, after everything's done, that hopefully is positive, but that's going to generate a tax. But the more deductions we can take against it, the lower that number is the lower our taxes.

And so when we review our expenses, the question you got to ask yourself, number one is, are there expenses in here that I might be able to accelerate some expenses that I might be paying in January, that maybe I pay in December, you know, for instance, maybe there's affiliate commissions, or a phone bill or, or something that I can pay a little bit in advance, to be able to know that I can take the deduction today, accelerate the deduction, get my reduced taxes, and do that now,

here's what I'm not telling you to do. I'm not telling you to go out and spend money on something you weren't going to buy, otherwise, okay? Because that makes no sense. And I hear a lot of people say this, that, well, I'm just gonna go buy stuff. And I'll get a tax deduction. But think about it, if I'm getting a tax deduction for $100 that I spent, I'm only gonna get a benefit of 30 cents on the dollar. Because let's say I'm in a 30%, bracket, I spent $100, that means I pay $30, less in taxes.

But I still spent the 100 bucks, and yet saved me $30. So I'm still net negative $70, which is fine. If you're buying something you were going to buy anyway. So let's say you want to get a new camera for work, or you want to get a new computer, maybe you buy that in December, instead of buying it in January, and you take the deduction, but if you don't need a new camera, if you don't need a new computer, don't go just spin in money, because you want the tax deduction.

Okay? And so I want you to look at your expenses and say, Are there things in the next two to three months that I can accelerate into this month into December into the last quarter that allow me to take a deduction today against the income that I have, so I know my income, I look at my expenses and accelerate those expenses in doing it. So that's those are the first two things and they're very straightforward, very simple.

The other thing that you need to look at is, is this because what's gonna happen is that you're going to have income that comes in, you'll have expenses, that that go out, you'll end up with this net number, that you're going to end up with taxes that you have to pay. So they're gonna figure out that what the taxes are, and then they're going to look at two things. Did you have any taxes withheld? In other words, if you got paid a salary, you had withholdings on that salary that you're going

to? That's if basically, you paid some taxes upfront, or did you make any estimates? Okay? Because you will have the taxes, then you'll have the withholdings and the estimates which offset it, which gives you what your balance is that might be owed. And what we're trying to figure out is, have you paid enough in in withholdings? Or have you paid enough in, in estimates to cover the taxes

that you might owe? Now, in my situation, what I'll typically do is I'll do an actual detailed tax projection, thinking about what's coming from the business, what's coming from personal and what are the tax, the stock gains, and all of that stuff. So I do a tax projection, I see what I paid. And then I look at what I should be paying before the end of the year to try and reduce the taxes as much as possible. And so when we start to look at it through those eyes, then we can plan now does

it take effort? absolutely does? Is it worth it? I don't know. You tell me if I can save 30 to 50 cents of every dollar that I can work through a plan. Yeah, it's worth it. Okay, because it's not going in the government's pockets is going in mind where I know, wow, it's going to be used, and I can use it to build wealth. And so so the first three steps is to just get your arms around your income, your expenses, and the taxes that you paid it. Now you can then work through some very

specific strategies. So the first strategy is this is to look at and say, Where can I potentially Max, my retirement account? Where can I max my retirement count? So if you have an IRA account, for instance, you can put $6,000 away and if you're over 50, you can but $7,000 away. Can we make that Can we make that contribution now? Can we make that count. So just understanding that I need to, I want to maximize retirement, if it's an IRA, it's 6000 7000. But let's look at it

this way. If it's a 401k formula, if you have a 401k, in your business, what you have the opportunity to do this year, as you have the opportunity to put $20,000 $20,500, Away $20,500 Away this year, have you maxed that out, and if not, then should you max it out, because remember, if I'm going to put money into that 401k, I get a tax deduction for it, assuming it's not a Roth version of it, I get a tax

deduction for it. And that money is sitting there for me, it's not going off to taxes somewhere down down the road. Now, if you are over 50, in a 401k, you can actually put $27,000 away. So you can reduce your income by $27,000. If you're over 50, by

putting putting that way. So I want you to look at, can I max my retirement accounts at at this stage, I will do one more layer on this, IRAs the the lowest amount 6000, or 7000, then you have the 401, k 20,500, or 27,000, depending on age, if it is your business, if it is your business, and you have a 401k like I do that has a profit

sharing component to it. In other words, you can actually make a an additional contribution, that 401 k profit sharing can allows you to put more than 20,000, you can actually go up to a total of $61,000 to put that away. Or if you're over 50 67,500. The fact is, is that this is a large sum for you to try and shield from taxes. And what you're doing is putting it into your own retirement account, so you can get access to it down the road.

And in the meantime, you invest it, it grows and it continues to grow. So one of the first places I look is should we be maxing out retirement accounts, Ira 401, k 401 k profit sharing primarily, in unique situations, you can look at something called a defined benefit plan, much more complex, much more expensive to set up. But the deductions are through the roof, in many cases, but it's only it's only good in a unique set of circumstances. So I'm not going to go into it

here. But know that that's available. But let's just start out with how do you Max either in the IRA or the 401k, or the 401 K and profit sharing that so that's number four, is to look at that and say, Hey, what do I need to do to max that out? That leads me to number five. Number five is funding an HSA. This is a wonderful, wonderful account, oh my gosh, this is one of the best accounts that that you can get get in place. This is HSA stands for health savings account. Okay,

health savings account. Now, it is only applicable in a very specific set of circumstances. In other words, the way that this works is that you're able to put money into this account to pay qualified medical expenses. This year, you can put in up to $3,650 $3,650 for a single or $7,300 for a family. So you could literally put $7,300 for a family away and get a tax deduction for it and not pay tax on it. Here's why this

account is important. But before we get there, let's talk about when it applies. This only works if it's connected to what they call a high deductible medical plan. So you're going to have higher deductibles lower premiums, and I can put money away in doing that. Why do I love this account? Because this account does a couple of things. I can put the $7,300 in and get a deduction for it. That's one benefit. I can now when I pay medical bills, take those bills and reimburse myself for those

bills. And when I take the money out of the account, and it's for qualified medical, I don't pay any tax on it. So I take the money out completely tax free. So I got a deduction on the way in tax free on the way out if it's for qualified medical. That's not the power of this account. Here's the power of this account. You put the money in and Take the tax deduction, you accumulate the bills, but you don't get reimbursed.

Okay? You leave the money in the HSA account and you invest it into an index fund or something like that. And you keep doing that year after year, you can invest in it can be 10 years down the road, and you keep all the medical bills that you have in a file, just scan them in by year. There is no limit on when you reimburse them, you don't have to reimburse them in that same

year. So imagine this, over 10 years, you put $7,000 for your family, your year away, $70,000 in and over 10 years, that grows to $200,000, because it's invested. So now I have $200,000, in account that I put 70,000 in, and I need $10,000 out. So I go to my file, and I take $10,000 worth of medical bills. And they could be a decade old. And I reimburse myself $10,000. And mind you, I put 70 in, it grew to 200, I take 10 out tax free, I now have 190 left, but I

got the money out tax free. The beauty in this account is investing it not using it to reimburse things real time but reimburse things downtime down the road, because you can allow it to grow. And now you have another tax free investment account working for you to build wealth in a major, major way.

Now, here's the cool thing about is that when you get to retirement age, if you still have the money in there, and you don't have the medical bills to reimburse, you can now convert it and actually use it as a retirement account and pull money out of it. Now you'll pay tax on it. But if it's not for qualified medical, but there's no penalties. So in effect, you created another type of IRA for you that allows you to do that.

But here's the way that works is that I would say that you've maxed out your if you have an HSA, or it makes sense for you to have an HSA and we'll talk about that in a second, then, and you haven't maxed it out, you might want to look at maxing it out one to getting it invested. And three, just accumulating the the medical bills and not reimbursing yourself so you can grow tax free and down the road, you can get those things reimbursed. Okay. When should you have an

HSA? Well, primarily, this is going to be in a situation where you don't expect heavy medical bills. So I don't have an HSA because of my my history with cancer. And I see a lot of doctors still and everything so. So the reason that I don't we don't do it is because it's a high deductible plan, which means I'm going to be putting a lot of money out of pocket to make that work. So it doesn't

really make sense. But you can go into an HSA, if you're sitting back saying I'm healthy, I don't expect any procedures, I don't have anything going on. So you do an HSA, and you have that high deductible plan. Now, the other side of it is that you don't have once you're in an HSA doesn't mean you're locked into it for life. So let's say that you're on an HSA for three years, and you're maxing out maxing out maxing out, and you know, you're married. And now you and your spouse are saying,

let's have a baby. Alright, now you know that you're gonna have a baby, which means medical expenses are gonna go up. In that year you elect out of the HSA, you get a more Cadillac plan, that's going to cover the medical expenses. And you do that because the medical expenses are high. And then if the medical expenses are going to go down again, then you can then elect back in, you know, the next year or the year after, or whatever. So the bottom line is that you can go in and out of

the HSA. But the beautiful thing about the HSA is tax deduction on the way in tax free growth of the investing in it. Number three is that I can pull the money out for qualified medical expenses tax free. And number four is that when I get to retirement age, I can use it like a regular IRA and pull it out and pay tax then and still have all that growth. So number five is to max out or fund the HSA if you have access to it. All right. leads me to number

six. Number six, bundle them donations, charity, charity, charity. So here's the challenge is that in the current rules, the current rules, they change the tax code, they increased what they call the standard deduction. So most people aren't getting itemized deduction. They're not getting a lot of deductions. One of the deductions that they can get credit for is charitable donations to a qualified charity.

But if you don't have enough in total deduction Since you don't get any benefits, so one of the things that we do, let's just take this year, for example, is that at the end of the year, if I'm going to make donations to a charitable organization, a church or a cause, I can make those donations in December and still take the deduction for the whole year. But what happens if I want to make this donations every year? Well, there's two ways to do

this. One is to go ahead and make the donation for 2022 in December, and then make the donation in advance for 2023. So you're bundling two years worth of donations in one year to move the number up high enough, so you actually get a deduction for it. Because now you you may be above that threshold. So bundling deductions, is a great way to increase the possibility of getting more deductions on your tax returns. But it depends

on your situation. And the rest of the the other deductions you have like mortgage interest and real estate taxes, which are limited and everything going forward. Now, I said there was another way to do this. And this really is number seven. But it's this idea of what we call a donor advised fund, imagine this for a moment, you want to be charitable in nature, but you're not 100% Sure, when and where you're going to put the money. So So you want to be charitable in nature, and you have a really

big year. Let's say that you had a windfall, you've got your you won the Powerball, whatever it is you got this money, and you got this is a big year. But I want to be charitable in nature. But I don't really want to give it all at one time. And I'm not sure. So there's something called a donor advised fund. And you can get these. You can get these at Schwab.

There's all kinds of places where you can get them but but a donor advised fund is where you put money into an account, let's say you want to make a donation of $50,000. So I'm going to take $50,000, and I'm going to donate it, or I'm going to contribute it to a donor advised funds. Okay, I'm gonna get a deduction for the whole 50,000. The day I put it in that donor advised fund, you effectively control. So it's sitting in an account, but it

hasn't gone to a charity yet. It has to go to a charity, and you get a chance to now decide what charity you want it to go to over time. So now you can sit back and say, Well, I'm gonna put 5000 to here today. And that leaves you with 45,000 left, and that 45,000 You can do over different years over different time periods to different

things. So, so point being is this, a donor advised fund allows you to take a deduction today for for a donation that you made into an account that is earmarked to go to a charity to charities that you haven't named yet. And then over time, you can distribute that to the charities to get a deduction for it. This is a wonderful tool. For instance, if you have appreciated stock, you can actually donate the stock into a

donor advised fund. Let's say you have stock that you bought that you bought it for $5,000. And it's now worth 50,000. If you sold the stock for 50,000, you would have to pay tax on the gain the difference between the 50,005 1000. But if you donate it to a donor advised fund, you get a contribution deduction, a charitable deduction for the 50,000 the value of the stock, you never pay tax on the gain. And now if you sold it, are you Are you donating it, you can sell it and then donate it out.

You get the charitable donation, you never pay tax on the capital gains, and you have the ability to be certo minded over a period of time. So one of the things that you want to look at is if you happen to have a windfall if you happen to have a fair amount of income and you want to be charitably inclined but you're not sure where you want it to go or you don't want it all to go

in one year. Look at a DA F A donor advised fund, open it up, contributed and take the deduction now and then allocate and distribute it out over a period of time. Okay, that's number seven. Number eight. Number eight is Oh, it is called last harmony harvesting. And this is something unfortunately that there's probably a lot you can do here. Okay. What we talk when we talk about loss harvest harvesting is this.

If you happen to have gains in the stock market, or you sold things for gains, like I do a fair amount of trading, I've got some gains, but also have some losses, I'm I'm not perfect, I got got some losses. So with my wealth team, I told them, I want you to harvest the losses. In other words, I want them to sell it and trigger the loss, because that allows me to offset the

gain. So now this gain I don't pay tax on, here's the challenge, because if we don't do that, then I'm going to pay tax on the gain and then some other down the road, I might take the loss, but I don't get as much benefit of it. So one of the things to look at is, do I have losses that are sitting in my portfolio that could offset income if I sold them and took the loss. Now, there's some limitations here that I want you

to think about. I'm gonna jump to the iPad just so I can pencil this out out for you. Because I think it's important to understand the strategy more readily. Because it's not about selling things for a loss, that's important. So when we talk about loss harvesting, it's a couple step process to do it, right. It's not just selling things for loss. So the first thing is that we can sell a stock at a loss, that's going to give us the loss. Now, this is where most

people will stop. And that isn't loss harvesting, that is just real loss realization, you are taking the loss, and that's it. But what we need to do is then we got cash that came in from the loss, we need to then buy something else. So we're not sitting out of the market. So if I'm going to sell a stock, I'm going to buy something to replace it by a replacement. Now you got to be careful here, it cannot be substantially similar to what you sold, because

there's a special rule. Let's put this in red, because this will destroy it. Okay, there's a special rule called the wash sale rules. And what that is, is that it's a rule that the IRS put in that said, we don't want people selling all their loss of stuff, say I have Facebook and I have a loss in Facebook, and I sell it on December 31. They don't want me to sell it on December 31, to take the loss on my tax return and get a benefit of it. And then on January 2, I

buy it back. So effectively, my financial position didn't change, but I got this big loss that I got a chance to take a deduction for and I still hold the stock. And so the wash sale rule says that you can't buy something that's substantially similar or the same, within 30 days of selling for a loss. If I sell it for a gain, it doesn't matter. But if I sell it for a loss, I cannot buy substantially similar the same thing within 30 days, or they will not allow the loss, they will not allow the

loss. So what that means is that we need to find a similar replacement, but different enough that it doesn't trigger wash sale rules. Because here's what's going to happen, the tendency is I sell so I end up with cash in my account, well, if I then don't do step two, I don't buy then the cash is just gonna get eroded. It's just sitting there and it's gonna get eroded by inflation, and

everything. The idea is simply to make a parallel jump, I've got a stock that I sell, and then I'm going to buy another one. And I'm still in the market, waiting for the growth and participating in it. I'm not trying to time it, I'm not trying to do anything. Literally, when we do loss harvesting, we know what we're selling. And we already know what our replacement is we do them within a couple of days. We don't wait within a couple of days. So we stay invested and we

keep on going. But loss harvesting is a wonderful way that if you have gains if you have things that you need to or you want to try and take advantage, vantage of trying to reduce them especially in a year when the markets down. You probably have a fair amount of losses that you could trigger, offset those gains, reduce your taxes, but then replace what you sold was something that is appropriate that doesn't trigger the wash sale rules. Okay. That leads me to number nine,

number nine. Number nine. Let's go back to let me just get back to the slides is look at Roth conversions. If this happens to be a year where your income is down, you're in a lower income tax bracket. Then If you have IRAs, or you have regular retirement accounts, you might want to look at the possibility of converting to Roth to pull it out of the account, you'll pay tax on it.

But that's why we're saying if you're in a low lower tax bracket this year, for whatever reason, you can convert it to Roth pay the tax, no penalty. But here's the beautiful thing, then that a portion that you converted to Roth and paid the tax on, will now grow completely tax free into the future. So when you take it out, when you retire, it's 100%, tax free. So we will look at Roth conversion strategies in a year when the income is down, or we're in a lower tax bracket. And to see if

it makes sense. Now, there's a caution here. Anytime you do a conversion, or a Roth conversion, it must stay in the account for at least five years. So if you're going to need the money, within five years, you can't do this. So the only thing that you're going to convert is the amount that you are going to be able to leave in place for at least five years. Okay? That leads me to Number 10. Number 10. This is what we need to do before the end of the

year. And that is this, update your trust, update your will for any life events, I'm going to do a whole episode just on how to protect your your assets and protect your wealth with trusts and wills and that kind of thing coming up. But in the meantime, one of the things that we tend to do is we create it if we have a trust, and you all should probably have a trust, but talk to your adviser on that. If you have a trust, we set it and we forget it.

So you might have children, you might have grandchildren, you might have gone through a divorce, you know, life changes. And when life changes, the trust needs to be updated. And too often we don't update it. And it's an old trust I've seen, I can't tell you how many times I've, I've read or I've been involved, or I've seen situations where person got divorced, they got remarried, they have kids from multiple marriages. And the trust that is in place is from the very first

marriage. And now the old spouse, the ex spouse is the one that's getting the assets when they meant to bring it to the new spouse and these other children. So it's really important to at least look at it once you're are there. And there may be nothing to change. But at least look at it once a year to make sure that your documents for your trust and your wills are up to date based upon your current wishes, your current circumstances, your current

desires as you move forward. So these are 10 moves that I think you need to do before the end of 2023. There's plenty of other things to consider. But the bottom line is this taxes aren't going away, taxes likely will go up. And so it is in our best interest to be proactive. And that means that you don't need to be a tax expert to do it. But you need to be tax informed, to be able to ask the questions and

be proactive about it. That means you don't wait till it's tax filing time you don't wait till the end of the year, you get in the game and you get in the game well before the end of the year and plan for it with my clients we and especially my

elite. We're looking at this to say we've got to think about this, we're going to add a plan and we're going to do this we're going to do that because I know that for every dollar that we can legally take take advantage of we're going to save 30 to 55 cents in taxes which leaves that money back in my pocket or their pockets to grow their wealth at a faster rate. And that's what

we want. It's the very reason that that when we have the insulate pillar in the affluence blueprint, the insulate pillar is how do you protect your wealth? How do you protect your income? How do you protect your cash flow from lawsuits but also from taxes? Taxes is the is one of the biggest predators and in the construct of the fact that it's a high percentage, especially if you're a state like mine, California, one of the most expensive states in the

land from a tax standpoint. So it's important for us to be proactive, which means that if you're not going to be the tax guru, which you don't need to be you do what you do, you need to make sure that you have the right advisors, and the advisors that you need to be with need to be proactive. Most advisors most tax preparers are prepares their scribes of history. They are react Active to what goes on, they're not proactive to define what you

want. And so it may require you to look for better professionals, if they're not proactive, or they don't want to take the time to do the tax projections to have the conversations to deal with the strategies to do with the tactics to use the code to use the rules to your benefit, then you probably need a different visor, I had a conversation with a young couple, that this very thing was going on with their their CPA, that the CPAs reluctant to do things that in their mind is aggressive, but it

really isn't the tax codes, defines it and says, You can do that. So why not use the rules play by the rules play by the legalities, but why not use them to the fullest extent to your benefit? See, we often think that taxes are are something to take from us. But we can also utilize those rules to our benefit. And there's nothing illegal immoral, unethical doing

that. And if you find that your your tax preparers, your CPAs are either one not proactive or two, not willing to understand the rules and use them to your benefit to the greatest, greatest extent possible. You need to find another advisor. Sorry. I mean, that's as blunt as I can be. But this is your financial future. And here's the thing, if we just think about the time value of money, it's huge. It's not just the 30 cents, or the 50 cents that you save on taxes this

year. It's the growth of that over the years to come If you're 20 years from retirement. And I can save $10,000 in taxes by doing things. It's not just the 10,000 I say but how that 10,000 is going to grow into probably 40,000 or more by the time I retire. So that tax decision, even though it seems like it's 10,000 today, maybe 40,000. I'm gonna future. So this is why I think it's important. I don't expect anyone to be enamored by taxes, I don't expect anyone to be excited by

taxes. I don't expect anyone to be an expert in taxes, but I certainly would encourage you to be informed about it. And make sure you have the right team around you to minimize it. And your time to do that before the end of the year is running out. Because on December 31. Many of these options are no longer available until next year. So if we're going to minimize our taxes, maximize the money in our pocket in 2022. Get in the game and do it before December 31. I hope I hope that you found some

value in this. I know it's not the warmest and the funnest of topics. But when we look at it through the eyes of making sure that we're keeping the money in our pockets in our children's pockets in our financial freedom path, then maybe we find the value in the fun in it and the joy in it. So until I see you in another episode, I hope I hope that you always always strive to live a life that outlives you. I'll see you soon. Cheers Thank you for listening to the affluent entrepreneur show with

me your host Mel Abraham. If you want to achieve financial liberation to create an affluent lifestyle, join me in the affluent entrepreneur Facebook group now by going to mele ram.com forward slash group and I'll see you there