Episode 30 - SALT Caps, EV Credits, and Tax Tips: Planning for 2025
It’s that time of year – when we need to start thinking ahead to 2025!
In this special episode, Deb Meyer shares year-end tax planning strategies following the recent election. Highlights include:
2025 Tax Landscape: Potential extensions to the Tax Cuts and Jobs Act, changes to state and local tax (SALT) deduction limits, and strategic timing for estimated tax payments.
Electric Vehicle Credits: Tips on maximizing the $7,500 EV credit in 2024 and considerations for foreign car purchases ahead of tariff changes.
Small Business Tax Planning: Importance of year-end projections, managing estimated taxes, and finding a proactive CPA.
Additional Tax-Smart Strategies:
529 College savings plan contributions
Tax-loss harvesting opportunities in taxable brokerage accounts
Qualified Charitable Distributions for retirees
Roth IRA conversions: when and why to consider them
Resources:
Kitces.com Article on 2025 Tax Changes
Saving for College: 529 Plans by State
Connect with Deb Meyer for personalized advice
Listen in to learn more:
(04:52) Electric Vehicle and Tariff Considerations
(12:36) Tax Loss Harvesting in Brokerage Accounts
(17:49) Roth IRA Wealth Transfer Strategy
Full transcript
Deb Meyer (00:01.848)
Hey there, we are getting very close to year-end, and with year-end often comes tax planning opportunities,. Especially after the election, we have a little bit more clarity into what 2025 might bring. So we're going to dive deep into tax planning on this episode. But before we get into that, I do want to make a finer point on the last episode about emotional attachment to money.
I did paint a picture in that episode about someone getting a bigger, fancier house. And I do want to clarify that there's nothing inherently wrong with a bigger house. What I was trying to convey and probably didn't do a great job of doing is the purpose behind that house. Are you buying that house to keep up with the Joneses or are you buying that house because you feel God calling you to having more children or you may be being a foster parent to multiple children, perhaps being a source of hospitality for small groups.
So again, I'm not passing judgment on people with large homes. It's just more about your personal calling and where you feel God's leading you. a bigger, more expensive home in and of itself isn't a bad thing. And the other point I was trying to make there is just around debt. And when you get too far into debt, it becomes a vicious cycle. If that larger home is way out of your price range. And even though they say, yes, you're approved for this higher mortgage, but you realistically don't think you could make that mortgage payment. that's another dangerous kind of slippery slope. So are you able to afford that much larger, more expensive home, or is it always going to be a stretch? And typically the least expensive house that you own is the one that you're currently in.
So, okay, enough about emotional attachment to money. I did just want to clarify that point for those of you who are in larger homes and might have felt a little bit saddened by the last episode. No judgment there, large or small, where do you feel God calling you? And could you be more generous or have more of a stewardship mindset when you're thinking about those bigger decisions? All right.
Deb Meyer (02:21.87)
Let's switch gears and talk about tax planning. So with the election results being in, I know some people are very happy about the election results, others not so much. Regardless of where you sit on that fence, we do have some additional information that can help guide some of the decisions for 2025. So I am going to link to an article in the show notes. It's a much more lengthy, descriptive article on taxes from kitsys.com. So that's typically for advisors, but
Happy to share some of those inner working details if you want to read up on it. But I will give an overview of some of just general generalities from that article. First off, Republicans like tax cuts and the Tax Cuts and Jobs Act of 2017 is supposed to sunset next year in 2025. But the reality is with Republicans liking tax cuts and controlling not only the presidency but also
House and Senate, we are in a position where we'll probably see continuations of those tax credits that were already done for the Tax Cuts and Jobs Act or possibly enhancements. And I do want to point out some of the potential enhancements. So one would be the elimination of the state and local tax maximum of $10,000 if you itemize deductions.
So let's just say you're in a high tax state like New York or New Jersey, Massachusetts, California. Some of those places have very high property taxes and income taxes. And the last several years here, since the Tax Cuts and Job Act was implemented, people in those states weren't able to fully take advantage of the real estate tax deduction. They were capped at $10,000 per year. Now,
in those particular states if that cap is lifted what that means for 2025 is that you would want to have as much tax as possible in the 2025 tax year not the 2024 tax year. Again this is more affecting those high income states whether it's property taxes I'm sorry real estate taxes or income taxes.
Deb Meyer (04:36.334)
For states, know, like Florida that don't have a state income tax, unless your property taxes are really large, it's not going to have as measurable an impact on you. Now, if you do happen to be in one of those states, I would think about if you have to make any kind of estimated tax payment for fourth quarter, you technically have until January 15th of 2025 to make that payment.
So rather than making it before December 31st, you might want to consider putting it into that early January timeframe. Just make sure you get it in by the deadline of January 15th. The other thing I wanted to point out was around electric vehicles. So as you know, a lot of the administrative promises were around getting rid of some of these electric vehicle credits.
There's probably going to be some tariffs on foreign-made goods like cars that are manufactured in Asia. So what we would see in 2025 is higher prices on some of those vehicles, but then from an electric vehicle perspective, right now in 2024, there's still a credit of up to $7,500 if you purchase an electric vehicle.
And your adjusted gross income as a married couple filing jointly is 300,000 or less. So, if you think about it in that term, if you're on the fence as to whether or not you're going to buy an electric vehicle this year or postpone it to next year, and you're below that income threshold, you'll probably want to consider post or I'm sorry, purchasing it in 2024 rather than waiting until 2025. and then kind of related to that with the cars and the tariffs.
If you're thinking about buying a foreign-made car, just understand that some of those foreign-made cars are going to be potentially quite a bit more expensive in 2025 than they will be this tax year. Now, if you don't need the car this year, I wouldn't recommend buying it just for the sake of buying it. But if something's on its last leg and you know you want to go foreign with a car purchase, you might want to consider trying to accelerate it.
Deb Meyer (06:51.038)
And with, with any of those, you know, kind of non-electric vehicles, there's no technical tax credit there, but it was just a point I was thinking about as we were talking about the electric vehicle credit. Okay. want to switch gears just for a minute and talk more about the importance of year end tax planning. Cause I think for a lot of people, if you're a W2 employee, there's not a lot of tax planning that can be done. you know, you have withholding throughout the year, you're
employers withholding that. If you own a small business though, that's where tax planning can really become an important piece of the overall puzzle. So I advise anyone that has a small business, especially like an S-corp where you're generating reliable, consistent profit, you're getting paid W-2 wages, but you also have some flexibility to take profit distributions. You really need a good tax advisor who's going to monitor taxes throughout the year, but also
prepare that you're in tax projection and see if there's planning opportunities to take advantage of before the end of the year. Now I don't have a special list of, of, you know, qualified tax preparers. know sometimes people have a hard time finding a reliable CPA that's proactive, but,
You know, I do encourage you just do some searches in your local area and try to find someone that has, you know, good, ratings and, maybe ask some of your other small business owner friends who they use and see if there's some possibility there for you to work with, with their CPA as well. Okay. So one finer point on that, if you are in a position where you're getting that year in tax projection and you see, okay.
I do have a significant balance due amount, whether it's federal or state or both. The question then becomes, should I have been doing withholding on my wages throughout the year or should I be making these more substantial estimated tax payments? And I just want to get into a little bit of the nuance behind that. if you have a regular W-2 job, you're going to have that withholding done throughout the year.
Deb Meyer (09:02.158)
there's a real benefit there if you can kind of closely match what you think the overall tax liability will be and make sure you're withholding it throughout the year. But on the other side with that irregular business income, the estimated tax payments look at income as it's earned each quarter. So, and I say income, but it's really profit. So if the business is generating $10,000 of profit in the first quarter, but then in the second quarter, they're generating $40,000 of profit.
You're going to want to be making a larger second quarter income tax or estimated tax payment for that income if you haven't already done some withholding for the first and second quarter. So you're really having to kind of look at where the business is and make sure if you have a big event, liquidity event or a big amount of profit in your business in that first half of the year, even first three quarters,
trying to pay that tax in as close to that event as possible is really crucial. If you wait until the deadline of January 15th, the fourth quarter deadline, and you haven't made any estimated tax payments throughout the year, but you know you're going to owe it, they could technically penalize you because you're paying it all in it that one time at the end of the year rather than throughout the year.
So again, working with a tax advisor who can be proactive on advising you is really crucial, especially if you're an S-Corp owner or if your business is taxed as an S-Corp. Also wanna talk about those of you who have moved to a new state. I'm in that boat for this tax year. So I moved from Florida to Missouri in July of 2024. And I do wanna make a finer point on that.
In my example, I went from a state with no income tax. I haven't been filing any state income tax returns for the last couple of years. And then for 2024, I will be starting to file a Missouri income tax return, a part year resident return. So in my case, I don't technically have to make any estimated tax payments to Missouri because I didn't have any tax liability last year in Missouri.
Deb Meyer (11:19.31)
And same kind of thing with you. you moved, it doesn't matter which states you're looking at the prior tax year that you filed in 2023, where were you a resident of? And if you paid income tax in that state, they're going to want you to continue paying income tax on 2024, but you're going to have to kind of look at when the date was that you moved and when you officially became a resident of the new state.
So again, anytime you're dealing with some complexity there, would highly suggest in those kinds of situations, getting a CPA or an enrolled agent who can help with the tax preparation process and really advise you through it is going to be important. But big note there, if you have estimated tax obligations, you can do it based off of the prior tax year. That's both for federal and state. And, or you can choose to do it off of the current tax year.
In my case, because I had zero tax liability in Missouri for 2023, I'm going to look at estimated tax from that standpoint of saying zero. And then whatever my Missouri balance do is when I calculate my return in April of next year, that's when I'm going to pay that Missouri tax. I don't need to pay it in by the January 15th, fourth quarter deadline. Hope that makes sense. Okay.
If you did move to a new state and you have the self-discipline, I would always suggest trying to kind of accrue what you think that liability is going to be in a separate savings account that can earn some interest since you don't technically have to pay it right away. You just don't want to be in a position where April 15th rolls around and you have no savings to actually pay that tax bill for the new state. Okay, here's some other year-round planning tax ideas.
number one is the Missouri or I'm sorry, college five 29 plan contributions. Now that I'm a Missouri resident, have a Missouri tax credit up to $16,000 as a married couple filing jointly, where I can get that Missouri most deduction on my Missouri tax return. Now that is state specific. So being in Missouri, they have that $16,000 credit and that's regardless of, which
Deb Meyer (13:39.726)
college 529 plan I save in. So I could be saving in a New York 529 plan if I want and still get the Missouri tax write-off. 529 plan contributions do not have any kind of federal tax impact. So it's really just state specific and you'll want to look at your state rules. And I do have some resources. I'll try to link to them in the show notes around savingforcollege.com where it gives the very...
specific state rules or you could just do a Google search and list your state and say 529 plan contributions see what it comes up with. Okay the other thing to think about is tax loss harvesting. So if you have some positions that have gone down in value in a taxable brokerage account you could be taking advantage of that and locking in what's called a tax loss. Now in order to
you know, be compliant with the what's called the wash sale rules. You definitely want to make sure you can get in a position that's not the same as the one you sold. So a good example would be I want to sell my, let's say, bond fund that didn't do very well this year. Okay. And my taxable brokerage account. Now, if I sell that bond fund and I get into a very, into the identical
type of bond fund, could be construed as this is too like kind and that triggers those wash sale rules. But if I go from a bond fund into, let's say it's a US bond fund and I go into an international bond fund, that's perfectly fine. Or if I go from a...
intermediate term bond fund to a short term bond fund, that's perfectly fine. So the idea here is that you want something similar, but you don't want the same position. And with that tax loss harvesting, you're probably not going to have many opportunities to do it with like a large cap US stock or exchange traded fund, just because the large cap equities have done so well this year.
Deb Meyer (15:46.406)
But some of the other asset classes like mid cap equities, small cap equities, international equities, fixed income or bonds, all of those might be fair game for some tax loss harvesting. And again, this strategy is only in taxable brokerage accounts. It's not in retirement accounts. Retirement accounts, you don't really have any tax implications until you potentially take the money out of the account and withdraw it.
Now, one other thing I want to touch on is qualified charitable distributions. I think there's some confusion there because they change the rules with RMDs, required minimum distributions from IRAs, and the ages are a little bit different. So I just wanted to quickly touch on those as well. With qualified charitable distributions, if you're 70 and a half or older, you can make the qualified charitable distribution from your IRA. Now,
If you're 73 or above this tax year, then you can actually use that qualified charitable distribution instead of your required minimum distribution, your RMD. So here's a prime example. Let's say you're 72 years old and you have charitable intent. Well, technically you don't have a required minimum distribution this year that you're required to take out of your IRA. So you could still take it out of your IRA and
go directly to the charity. But the real benefit is for those who have those required minimum distributions, those who are now 73 or older. They will want to take out the qualified charitable distribution if they want to support specific charities in larger amounts. And they're just saying, hey, whoever the custodian is that's holding that IRA account, they're instructing that custodian to send a check or wire.
form of payment to this charitable organization directly. And the benefit there is that now it's not included as income as a required distribution. Technically you don't get any kind of tax break from it, but you're not including it in income. So for someone who's very philanthropic, let's say their required distribution is 50,000 a year and they want to give 10,000 to a charity. Now they just took that 10,000
Deb Meyer (18:07.054)
put it directly to the charity and then they only are capturing 40,000 of required distribution on their income tax return. So it can be a really good strategy for those clients who are required to take the distributions and who want to benefit charities. And the max in 2024 to do a qualified charitable distribution is $105,000. That's gonna adjust up a little bit for 2025.
All right. One other thing I want to touch on is Roth conversions because I know there's some confusion around that as well. And at a high level, the things to be thinking about with Roth conversions are, you in a higher or lower income tax bracket than you would be in the future? So for those of you who are in your prime working years, you're continuing to grow your salaries, grow your families, you're earning a lot of income.
this might not be the ideal time for you to be doing Roth conversions unless you have a significant job change where your main source of income is going down. Right. If you're thinking about from a retirement perspective, it's always good to have a balance of these Roth assets and these pre-tax assets. And the reason I say that is because if you're exclusively focused on Roth, you're never getting any of the pre-tax deductions from
retirement contributions in those prime earnings years. But if you have a mix of both, you actually have some flexibility when you are retired to draw down on different types of assets. So when I work with retired clients, typically I'm being very tax sensitive and saying, okay, what kind of buckets can we separate into as we're making withdrawals? And almost always I'm going to wait on doing any kind of Roth IRA withdrawals until I absolutely need to.
I always try to use other assets like pre-tax retirement accounts or first brokerage accounts to really draw those down. And then if there's still a need, go into the Roth. But the Roth is a great multi-generational planning tool. It's a great way for you to pass down wealth to the next generation if you don't need it yourself or your own retirement. So there's just a lot of benefits to having the Roth. But if you're thinking about it long term,
Deb Meyer (20:31.338)
You don't necessarily want to be converting large amounts into a Roth IRA from a pre-tax or I'm sorry, a traditional IRA. You don't want to be converting a lot when you're in those higher income tax years. You want to think about the years where your income dips dramatically and you're in a lower income tax bracket and really time those conversions around those events.
So I hope that gives a little bit of perspective. I'm not going to go into a lot of detail on other like backdoor Roth conversions or anything like that on today's episode, but I do want to say these are some things to be thinking about from a year end tax planning perspective. And there are things that you could be even be thinking about throughout the year. They don't have to be confined to year end. Now, if
some of these techniques interest you, would suggest contacting your financial institution sooner rather than later. Many of the custodians have cut off dates much earlier in December and they say if you're putting a request in after a certain date, they're really just going to get to you on more of a best efforts basis. can't guarantee that they'll have it processed before the end of the year. So timing is everything with this. I wish this episode dropped a little bit sooner in the month, but
It will be released on December 12th and hopefully it still gives you enough time. You should have at least another week to implement some of these ideas if these are considerations for your family. But I do encourage you, if you do want to work one-on-one with me as an advisor, just feel free to reach out, set up an initial call, and then we could really get kickstarted in the new year. It's going to be hard to establish a relationship this quickly in the year.
as 2024 comes to a close. But feel free to reach out and we can definitely look at helping plan proactively for these items for 2025. Okay, I hope you have a great rest of the holiday season. I am going to be dropping another episode before the end of 2024, but it's going to be an interview. And just to give a little bit of preview for what's in store for 2025, I do love having these mix of solo and interview episodes, but I also find that I'm getting many more eager guests, people that I think are really cool to learn from.
And they might not be specifically in the finance field, but I think they're going to really help propel you forward in a better path for your family. So I will be potentially introducing more guest appearances instead of trying to always keep it one episode per month of a solo and one episode per month of interviews. I'll probably increase the amount of interviews as we go into 2025. Just want to give you a little preview and caveat, but there are going to be some great guests in the coming months and I'm really excited for what's ahead. I hope you have a blessed holiday season!