Ep. 163 – Steven Jarvis – Mid-Year Tax Strategies

Are you committed to having a tax-planning conversation outside the tax season? The only way to win in the tax game is to have a proactive approach when it comes to tax planning.

It’s important to be committed to having some kind of tax-planning conversation on any topic, especially with a professional outside of the traditional tax period.

In this episode of the Secure Your Retirement podcast, we have Steven Jarvis, a CPA, owner of Retirement Tax Services, the host of Retirement Tax Podcast, and is knowledgeable in tax planning. We discuss the benefits of tax planning and a few ways how you can get intentional to avoid paying more tax than needed.

In this episode, find out:

  • The importance of tax planning to avoid the pain of the tax-paying experience.
  • How (QCDs) can lower your taxable income even when taking standard deductions.
  • How doing a QCD can help you pay lower premiums for Medicare.
  • The benefits of the donor-advised fund, allowing lumping of multiple years of charitable contributions into a single year.
  • Why you should consider getting your money into a tax-free bucket according to your tax bracket.
  • The reasons why you should or shouldn’t consider doing a Roth conversion.

Tweetable Quotes:

  • “Everyone should consider a Roth; it does not mean anyone should do one.”– Radon Stancil
  • “If you have any concerns that tax rates might go up, getting dollars into a tax-free bucket is going to set you up for success.”– Steven Jarvis
  • “The only way we get ahead with tax planning is if we have an intentional approach.”– Steven Jarvis

Get in Touch with Steven:


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To access the course, simply visit POMWealth.net/podcast.

Here’s the full Transcript:

Radon Stancil:Welcome everyone to our Secure Your Retirement Podcast. Murs and I are super happy to be able to have you with us today and we are also extremely excited to have our guest. We have with us Steven Jarvis. You might remember him, he was with us on Episode 133 where we talked about tax planning. You know what? It’s kind of a oxymoron to say excited to see a CPA, but we are because we love him. So thank you very much, Steven, for coming on and talking with us today.  
Steven Jarvis:Yeah, I’m happy to be here. I get that all the time when I’m telling people how excited I am to talk about taxes and they say, “Oh, you’re just putting on a face, you’re not really excited.” But I am because this is a topic where we can help people, we can help people save money. It’s a really emotional topic for people so I can see the impact it has so I do get excited.  
Radon Stancil:Yeah. Well, I tell you this. We work with you, Steven, and our clients work with you. We’ve had such good feedback this year from that and I think I would say that our clients are excited whenever they think about the fact that … Because, to me, when I think about taxes, almost always I become stressed because it’s like, “Okay, well … ”  
Radon Stancil:And I think the stress is two things. One is you didn’t do the right planning, and then the other one is it’s unknown. Sometimes you think you walk into this scenario thinking, “Oh, I thought I owed this and now you’re telling me I owe this,” and it’s stressful when that occurs. Whereas, if I know the plan and I know and understand it, it’s not that bad. It’s not good, but it’s not that bad.  
Steven Jarvis:Yeah. As consumers, as taxpayers, we kind of get trained into this idea that tax time is March and April, and that’s the only time of the year we should think about taxes. That’s where that stress comes from of waiting until that time of year, it comes as a bit of a surprise, usually an uncomfortable surprise. So being able to change that conversation, talk about tax planning, talk about looking through the windshield instead of the rear-view mirror, and having a midyear check-in. Having a time of year where we’re proactively thinking about taxes and not letting that just surprise us on the back end.  
Murs Tariq:Yeah. So we were having a little pre-talk before we started recording today, and Radon asked Steven, he was like, “Hey Steven, so we’re past tax time. Are you relaxing now? And I want everyone listening to appreciate Steven basically said, “Well, I’m a little bit different than most CPAs. It’s not just getting through tax season because as soon as my team is done with tax season, well, then it’s all about tax planning for the rest of the year.” And that’s kind of what we want to approach today is, “Hey, we’re through tax season now, what are the things we should be thinking about as we go from the middle of the year to the end of the year. What are at least opportunities that we may have that we don’t want to miss?”  
Murs Tariq:And then all these things we can be thinking about. So Steven, I’ll let you open up and I’m sure you’ve got a couple things as you close out your tax season for individual followers, a couple things that have come up in conversations that you may want to say, “Hey, why don’t we think about this?”  
Steven Jarvis:Yeah, definitely. And we can start on the simple end of things of when I’m working with clients, one of the first things I’m going to do even as we’re wrapping up the tax filing, but then as kind of an action item for after the deadline is how did you feel about the refunds you got the payment you had to make? What was that tax filing experience for you?  
Steven Jarvis:Because taxpayers commonly will kind of embrace this myth that there’s nothing you can do about your taxes. And while we all need to pay the amount we owe, I’m not really interested in leaving the IRS a tip. If we’re proactive, if we’re intentional, there’s things that we can do. If every year we get to April and we have to write a big check to the IRS, great, let’s adjust our withholdings, let’s work with a trusted advisor to change this situation.  
Steven Jarvis:We don’t have to keep having the same pain every year of … On the flip side if we get huge refunds every year and we sit there wondering why we gave the IRS an interest-free loan, great, let’s dial that in. And now in the middle of the year is when we want to be looking at this, we want to be looking at how’s our income been so far this year and can we make those adjustments for the rest of the year? And that might seem like a simple thing, but it’s going to change your experience at tax time.  
Radon Stancil:Yeah. Good. So here’s a couple things that we’d like to get your perspective on. And I mean, you’ve got your own things too, but Murs and I, these are things that we commonly run into. And I think sometimes people don’t maybe get the impact of them and maybe don’t understand exactly how big a deal it is. But one of those is QCDs, qualified charitable distributions.  
Radon Stancil:When we look at those, the way they work, could you kind of help us understand the power of a QCD? When a person’s doing a standard deduction and they wouldn’t be able to get the benefit of that anyway, and how that would work. Because if they take the money out of their IRA and they just take it as a required minimum distribution, for example, or they take it out in they’re 70 and a half and older and they just take it and then they contribute to their charity. What that looks like compared to that and help us to appreciate the power of that.  
Steven Jarvis:Yeah. So a charitable distribution, a QCD, this is when we’re taking money directly from an IRA and gifting it to a charitable organization. There are some important nuances in here to your point. It needs to go directly to the charity. We can’t take the money, cash it and put it in our bank account and then contribute it. Typically, we’re looking at this as we kind of in connection with talking about how we’re going to handle our required minimum distributions, but there’s a lot of power here.  
Steven Jarvis:One of the things that I’m still constantly reminding people is that the age for our qualified charitable distributions is 70 and a half, which is an important distinction because we can start making those charitable distributions before we hit our RMD age at 72. But it goes beyond just having a way to satisfy our RMD by supporting a great organization. When we look at our tax return, a lot of us get really focused in on, did we get a refund or did we have to make a payment? But really we want to kind of start going back a couple of lines and understanding what’s going on.  
Steven Jarvis:One of the lines that I always try to help people focus in on is how much of your hard earned money did IRS actually keep? What was your total tax? And that’s really driven by taxable income. And to your point of where the power is in these QCDs, if we just gift to charity out of our bank account, it’s going to lower our taxable income only if we are able to itemize. And 90% of taxpayers are not itemizing. So 90% of the country is getting zero benefit from their charitable contributions.  
Steven Jarvis:So one advantage of a QCD is that we can gift to charity, get a tax benefit from it even if we’re taking the standard deduction, but it goes beyond that. Because, again, if we gift directly to charity from our bank account, it’s going to lower our taxable income, but there are some other line items on our tax return that are really important. One of them is adjusted gross income. And I’m sure your listeners have heard this term before, but just indulge me for a second, especially as we’re talking about our clients in retirement or taxpayers in retirement.  
Steven Jarvis:One of the reasons that number can be really impactful is because it has an impact on how much we pay in Medicare premiums. And so, another advantage of QCDs as opposed to just writing a check out of your bank account is that a QCD will lower our adjusted gross income, not just our taxable income. So in addition to lowering the amount of our income that the IRS is going to tax, doing a QCD can actually help you pay lower premiums for Medicare. And so, there are multiple ways that we are getting a huge benefit from doing those QCDs.  
Murs Tariq:Yeah. I just got an email, I mean, maybe an hour ago. So walking into the studio basically to record this and got email from a client who’s only been with us for maybe about a year, a year and a half. And one of the things that we talked to her at the beginning was these QCDs. She told us that she was giving charitably, which is the scenario of taking her RMD, paying the taxes, putting in her bank and then writing the checks to the bank. And then we talked to her a little about QCDs last year.  
Murs Tariq:This year, just now an hour ago, I got an email from her, that basically says, “Hey, I know all about the QCDs now because of you guys. Here’s a list of the charities that I want to have my QCDs go to.” And effectively what she’s doing now, she’s well-educated, she’s given us all the information, and now it’s just a matter of doing the signature. And now her total RMD is going to be essentially tax-free and go to wherever she wants it to go to.  
Murs Tariq:So I think it’s a powerful thing as long as you know about it. We’ve been making a point to talk to all of our clients who are in that category and younger clients to be thinking about these things that now this kind of segues us into, okay, so what if you are under the age of 70 and a half and not eligible for a qualified charitable distribution? And you did make the one mention of being able to itemize and being able to itemize makes it possible for you to get some benefits from your charitable donations.  
Murs Tariq:Well, a lot of us cannot itemize ever since they raised the standard deduction a few years ago. So one of the things that we know is a strategy and we talked to clients about that. And again, we’re going along the lines of charitable giving is this idea of a donor-advised account or a donor-advised fund. Where basically you take money, put it into this specific donor type of fund. That means once this money’s in this fund, it is earmarked for it to be given out to charities, and that money is going to go to charities tax-free. But how does that work from the tax perspective of the taxpayer? What are the benefits there and things that someone may be wanting to think about?  
Steven Jarvis:Yeah, that’s a great question, Murs. I love the success story about working with the client on the QCDs. That’s why I love doing the tax planning is being able to experience those stories with clients. But as we talk about donor-advised funds and just real quick as we talk about charitable giving in general, I think you were alluding to this, but one of the things I like to remind clients is that we want to give to charity because we care about the charitable organization, we care about the cause. We’re giving because that’s part of our mission, part of our goals.  
Steven Jarvis:We want to do it tax efficiently while we can, but you’re never going to come out ahead from a cash flow standpoint by giving to charity and thinking that there’s some huge tax credit that goes along with it. I like to clear that up right out of the gate. But for our taxpayers, for our clients that are charitably inclined, there are definitely tools available to us to make sure it is tax-efficient, which in my mind, that just gives the client even more ability to support the causes they care about.  
Steven Jarvis:So when we’re talking about a donor-advised fund, like I said before, 90% of taxpayers are taking the standard deduction. And when you take the standard deduction, that literally means you’re getting zero tax benefit from your charitable giving, which honestly it’s great news that you get the standard deduction because then you get to deduct even more than you would had actually paid out. But if we plan ahead, if we’re intentional, these areas where we cannot tip the IRS, where we can intentionally reduce the amount that we’re paying in.  
Steven Jarvis:So specific to a donor-advised fund, the way this works is it allows us to lump multiple years of contributions into a single year. That’s the way I look at it. So if we’re working with a client and they’re typically giving $10,000 a year, and that $10,000 is not getting them over the standard deduction, then we would look and say, “Okay, if this is your intention to continue to give like this, do we have the means available to go ahead and make three or five years of contributions all at once?”  
Steven Jarvis:And just like you described, what would happen is that those funds would go into this donor-advised fund, it’d go into a specific account that the taxpayer still controls. We’re not making a commitment. So if we take five years at $10,000, it’s not that we’re putting $50,000 into this account and it has to go to a single organization that we decide on right then and there. We’re just saying we are going to use this eventually for charitable causes, but then we get to put that $50,000 into that donor-advised fund all at once, which means we get to deduct it on our tax return all at once.  
Steven Jarvis:And now we’re well above the standard deduction and we’re actually getting a tax benefit from our charitable giving. And then those next four years where we’re not making those big contributions into the donor-advised fund, great news, we still get the standard deduction. So we’re not any worse off in those years and we have that one year, every three or five years however often we contribute that we’re getting that added benefit. So it can be a great tool when we’re consistently giving to charity, but not consistently getting a tax benefit.  
Radon Stancil:Fantastic. Well, I mean, we’ve knocked out two big strategies already with QCDs, donor-advised funds. And those right there could be a lot, but we’re going to hit a third one that we have and then we’ll wrap up with whatever it is that you might have that you want to share and close us out with. But the third one is something that I think that people hear about. It gets a little confusing. Although it’s talked about all the time, there’s probably tons of articles about it, but is this idea of a Roth conversion.  
Radon Stancil:Now, here we sit midyear, we’re talking and we’re trying to plan, we’re trying to think forward. So this idea of a Roth conversion, getting money from a traditional IRA over to a Roth, sometimes I think with us, we find clients kind of scrambling right at the last of the year. Or they’re asking at the beginning of the year, “Hey, should I do this or should I not?” But then we’re like, “Hey, well, hold on a second. We got a lot of things that we need to think through here. We need to understand a lot of things.”  
Radon Stancil:So I guess I’m going to ask you as from a CPA if I am thinking, “I read this article, I saw it on TV. I did whatever. Should I do a Roth conversion?” Could you walk us through what a person needs to think about? Like kind of stairstep us? Like what do I need to think about to determine whether or not I should do it? This is what I tell everybody. Everyone should consider a Roth. It does not mean everyone should do one. So what should we think about to consider it?  
Murs Tariq:Oh, and before you do that, I don’t know if I heard you explain a Roth conversion rating. But for anyone listening that doesn’t know what a Roth conversion is, basically it is the act of taking your pre-tax assets, your IRAs, your 401(k) type assets that you have not paid taxes on yet. And getting in into a tax-free zone, a tax-free bucket. The only way to do that is to pay taxes on that money, but the advantage that everyone reads about is that if you do these Roth conversions, now you’re in a tax-free zone, and that money is going to grow tax-free for a very significant period of time.  
Murs Tariq:That could be tremendous and very powerful with tax-free growth. But the caveat is you got to pay the taxes. So Steven, now I’ll let you take over. What do we need to think about when we’re doing these Roth conversions?  
Steven Jarvis:Well, and on behalf of tax preparers everywhere, I really appreciate the reminder there for everyone that you will pay more taxes this year, because that is a constant frustration for tax preparers. When advisors will recommend a client do this and don’t make it clear, or there’s just a big time gap. That you’re doing the Roth conversion in May or June and then you’ve forgotten by April that you intentionally paid more taxes. So love the proactive way you’re approaching this.  
Steven Jarvis:As far as who should consider a Roth conversion, Radon, I’m right there with you that everyone who has IRA dollars should consider it. Not going to be the right fit for everyone, but absolutely this is something we should be thinking about to say, “Is this something we should go ahead and consider doing this year?” And in a year like we’re having right now, I know there’s probably not a lot of silver linings for people as they watch their account balances go down with the market.  
Steven Jarvis:But if we’re talking in terms of Roth conversions, well, great. Now we have the opportunity to convert IRA balances at a discount, essentially because what we’re doing here is we’re looking ahead. We’re looking into the future and saying, “Okay, at some point in the future, do I think my tax rate will be higher? Whether that’s because I have more income or because the current tax laws are going to expire in 2026, and we know rates are going up.” Or if you have concern that Congress might change the rules on us at some point and increased tax rates.  
Steven Jarvis:Whatever the source of those increased tax rates in the future, if you have any concern the tax rates might go up, getting dollars into a tax-free bucket is going to set you up for success, because we’re essentially taking away the IRS’s ability to change the game on us later. And so we want to look at what tax bracket we’re in now versus what we might expect to be in the future. And so, this is where we get into the analysis or doing the assessment is great. It might not always be the right fit.  
Steven Jarvis:If you are in your peak earning years and between the time that you retire and Social Security and RMDs kick in, you know you’re going to be at a lower tax rate, maybe right now isn’t the best time to do those Roth conversions because you’re in your peak earning years. But what surprises a lot of people is that they actually end up in a higher tax bracket in retirement than they might have anticipated because of Social Security, because of RMDs.  
Steven Jarvis:And so, that’s where the advantage of working with a professional in this area really comes in to have somebody help you and say, “Okay, great, right now you are in the 22% bracket” and you might be thinking, “Hey, my income’s going to go way down in retirement,” but let’s make sure we really understand whether that’s the case. Because to your point, Murs, doing the Roth conversion means we’re going to pay the taxes now. So I always like to look at, “Okay, what’s the risk this goes wrong? What’s the risk that I end up worse off?”  
Steven Jarvis:And in doing a Roth conversion, really the only way I end up worse off is if tax rates go down. Tax rates can go up, they can stay the same or they can go down. If they go up or stay the same, great. Even if they stay the same, I’ve created more flexibility for myself. I personally still think I’m better off for having it in a Roth. And then I just have to step back and say, “Okay, am I really concerned that tax rates are going to go down in the future?” And I have a hard time coming up with a scenario where I honestly believe in my heart of hearts the tax rates are going down.  
Steven Jarvis:My crystal ball doesn’t work any better than anyone else’s, but just for more I’m sitting, I think it’s more likely that tax rates are going up in the future. And so, those are some of the kind of the starting place of should we look at pursuing a Roth conversion?  
Murs Tariq:So a quick note that I’d like to make on any of these as you’re listening on the QCD, the QCD, the qualified charitable distribution, the Roth conversion, definitely you need to have that decision made and completed and the actual action taken by 12/31. So all the more reason that we’re coming to you here in June and mid-year saying, putting the idea in your brain about, “Hey, do you want to be thinking about this? Do you need to get with your professional and talk about this?” Because there is a timeline on when you can take advantage of this, which is 12/31. And so, definitely be thinking about that.  
Radon Stancil:I only have one correction for one of the things you said, Steven, in your scenario because you talked about people going down with the market. When it comes to us, Murs and I, we don’t have clients that go down with the market, we protect them against those major or significant losses.  
Steven Jarvis:Perfect, perfect. All the better.  
Radon Stancil:All right, so you’ve given us already some things here that we’ve laid out for you. Just let me throw it your way. Are there any kind of things that you like to remind your clients about when it comes to this midyear tax season instead of just waiting till the end of the year?  
Steven Jarvis:Yeah, I’d say more than anything just so we don’t just keep going with a laundry list of potential tax planning strategies, because there certainly are others. The biggest thing I try to reinforce is that for me it’s non-negotiable that we are going to have some kind of tax planning conversation outside of that season. The only way we get ahead with the IRS, the only way we get ahead on tax planning is if we have an intentional approach is if we have a proactive approach.  
Steven Jarvis:The only time we’re thinking about taxes is in March and April, we lose that game every single year. So whether it’s Roth conversions that make the most sense this year or QCDs or getting withholdings adjusted, whether it’s tax-loss harvesting. Whatever the topic is, we’ve got to make sure that we’re completely committed to having some kind of tax planning conversation outside of what historically has been that tax time of year for most people.  
Radon Stancil:Great. So, well, I just want to say that, Steven, we appreciate again you coming on and chatting with us for a little bit. We appreciate our partnership that we have with you in retirement tax services. It’s great to be able to have … I always tell people, people come to us to help them with their financial planning, their retirement planning. I say, “Look, I don’t do my own taxes. I get somebody else. I get a professional.” And so, to have somebody who comes in and does it every day, we get to talk about some things that we may think sounds somewhat simple, but for a lot of people these things are super complicated.  
Radon Stancil:I just appreciate very much you coming on and chatting with us. And I do want to say this, by the way, for all of our listeners. If you’re listening at this and you’re thinking, “Oh my goodness, we’ve covered all these different topics.” Don’t forget that you can go to our website and you go to pomwealth.net, go to the blog page. We have an article that is written on this very topic. So it takes us all through those numbers. It takes us through all this information so you don’t have to think about remembering it and all that kind of stuff. But before we sign off here, thank you so much, Steven. We appreciate you so much coming on and chatting with us.  
Steven Jarvis:Yeah, I loved being here. I appreciate the invite. I’ll look forward to the next time.  
Radon Stancil:All right. Thank you so much.