Ep. 198 – Planning For Taxes in Retirement

We know nobody likes to talk about taxes, but there are things you must have your head wrapped around. Thinking and preparing for taxes throughout the year makes the whole scenario easier when tax season is here.

When preparing for tax season, there are some things that you need to compile for your CPA, and it’s easy to forget a document or two.

In this episode of the Secure Your Retirement podcast, we talk about the categories of information you need to get ready to file your taxes. Listen in to learn how to avoid a big tax bill by getting your 10-99 document, filing it, and offsetting some of those things.

In this episode, find out:

  • How to handle self-employment income and keep a record of your estimated tax payments.
  • Rental income – keep a record of the expenses and dates of the transactions.
  • Retirement income – understanding the 10-99 document and its tax information.
  • The 10-99 document generated from your savings, investments, and dividends and how it works.
  • Get your 10-99 document from your custodian to avoid getting a big tax bill.
  • How a tax-deferred account can generate a 10-99 document.
  • Homeownership – the documents you need to have ready for tax deductions.
  • The donor-advised fund and the benefits you can get from it if you’re charitably inclined.
  • Why you should keep track of your medical expenses and health insurance.
  • Keep a record of your state and local taxes and give it to your CPA.
  • HSA contribution – give the 5498 form to your CPA to get the credit and deductibility.

Tweetable Quotes:

  • “If you do not get a 10-99 document, file it, and offset some of those things, you could get a very big tax bill that you’d have to go back and correct it.”– Radon Stancil
  • “If you have money coming in the door, whether its wages, earnings, pension, retirement income, or investments, there should be some type of documentation.”– Murs Tariq


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Here’s the Full Transcript:

Radon Stancil:Welcome, everyone, to Secure Your Retirement podcast. Murs and I today are going to talk about a topic that everybody loves to talk about, and that’s taxes. So, you can tell I’m doing a little one of those sarcastic ones there. Nobody wants to talk about taxes, but yet we sit here today, as you’re getting this information, and we are right there, right at tax season. So, we wanted to talk a little bit about some of the things that you just kind of have to get your head wrapped around, because we do this once a year. We don’t want to think about it ever again, so we forget about all the things that we need, and every year, we come back and go, “Okay, what have I got to get?” I know in my overall planning process, we actually have a checklist or a document that says, “Here’s all the things I got to gather.”  
 And I personally keep a little file, and all throughout the tax season, I’m putting everything in that file that I know I’m going to need to be able to get to my CPA, so that I make sure I have everything that they need. And every time I do that, they always tell me, “Hey, you forgot this document. You forgot this particular piece.” And so, we wanted to talk it through. And ultimately, what are some things that you would get or that you need to think about and compile as you get ready to get your information to your CPA? So, Murs, can we start off here? By the way, let me just set this up. We’re going to talk about quite a few different categories. We’re just starting here and saying, “Well, what if I’ve got some self-employed income?” Self-employed income could be I’m a consultant, I’ve got a small business. So, Murs, can you walk us through this first avenue?  
Murs Tariq:Yeah. So, again, it is that time of year to get all those documents together. And self-employed, usually that’s going to revolve around the idea of receiving a 1099. If you perform services and you got paid, kind of like as a contractor, you you’re going to get a 1099. And with 1099s, usually, taxes really haven’t been paid on those dollars. So, it’s a big piece of your income that you really want to get in there and get in there properly. And then there could be K-1s. Those could come from if you are in some type of partnership from a business perspective, they could also come from investments as well, having a limited partnership into a investment that could generate a K-1. The thing about K-1s is that they don’t always come out as quickly as people would like them. And I’ve heard plenty of stories on K-1s and they operate very much like a 1099 profit and loss and your share of all of that.  
 But I’ve heard plenty of stories of people getting their tax return done and filing it and then also getting the K-1 in the mail from that partnership or that investment. And they just have to start all over to make sure that was incorporated. So, if you’re going to get a K-1, make sure that you get it before you file your tax return. And then when we’re talking about self-employment, there’s a lot of things that you want to be keeping records of as well, all the different expenses it takes to run your business. So, having together check registers or your credit card statements, receipts that you use throughout the year, business use asset information like a car or a vehicle or a trailer or anything like that, that you use to make your business operate, you’re going to want to use that or potentially need that if you are going to be depreciating an asset.  
 If you have a home office and there’s rules around a home office, but you want to be thinking about that as well, and because that could potentially help out your tax situation. And then if you have been making quarterlies or estimated tax payments, having a record as far as what you’ve paid in so far as you prepare the return or you’re giving the return or the data to a CPA to prepare, they know what you’ve already paid so that you don’t overpay and you’ve got the right numbers in place. So, with self-employment, a bunch of different things, but ultimately I think Radon said it best, you keep a file not just as you approach tax season, but all throughout the year. As those receipts come in, as those records come in, you want to keep that file and keep it up to date so that when it comes tax time, you can hand it off to the CPA where you’ve got exactly where you need it or when you log into TurboTax yourself.  
Radon Stancil:Yeah. One thing I was just looking at here, talking about that, when you said to keep a record of your estimated tax payments, I personally do all of my estimated tax payments. I do it online through the federal government’s website that they have set up for that. What’s nice about that is, at the end of the year, you can just print out all of those payments or have a record of all those payments. It has them all there. Here’s a little thing you got to remember, and this is one of those things that if you are happen to do an extension, which I do every year because of having the business and my personal, is it only keeps those payments going back 18 or 14, 16 months, something like that I believe. So, if you don’t print it out, you’re not going to have those previous payments. And your CPA can pull a record of what you’ve paid, but they don’t have the dates and you’d have to file those dates to make sure that you don’t get penalized on your payment dates.  
 So, make sure you keep a record of that. If you’re writing a check, you got those checks when they were written and when they were paid. But that’s really, really important to keep in mind. All right, we’re going to talk just a second here about rental income. A lot of our clients and those that are talking to us have maybe a rental house that they have one or two or three properties. So, this is just, again, one of those things, keep in mind, you want to make sure obviously what you’ve been getting in income. That’s pretty easy. You can see all the rental income you’ve gotten off of it. But what might not be as easy if you don’t do it throughout the year is all of the expenses. And this is really going to help you when it comes to your profitability here, making sure that you think through and then talk to your CPA as to what else can you count as expenses. Don’t think that something that you think might not count could be counted as an expense.  
 So, make sure you make a record of every possible thing that you would’ve put toward a cost there when it came to that asset. Make sure you keep the dates of when those transactions occurred, as well as making sure that you understand that you need to be making tax payments, estimated tax payments there as well, because you don’t have your withdrawal on that income. All right, let’s talk a little bit about retirement income, Murs.  
Murs Tariq:All right. This one’s a big one. It’s a big category in general. The next two categories are going to be heavy on this word or in this number or document called a 1099. And there are various 1099 documents out there and we’re always waiting for those to come in so that we can actually start the process of filing our tax return or start the process of dumping it on our CPA to get it all done for us. But we can’t do it until we get all these 1099s in. And I’ll go ahead and say that most financial institutions, if you’re waiting for yours, they have really all the way through the month of February to get those to you. So, we work closely with Charles Schwab. We know that from an investment side, they send out their 1099s. Really, they start in February, but they have all the way through. So, some will go out in the middle of February, some all the way towards the end of February, and they typically will mail them or put them on your online portal.  
 But 1099s are big. So, if you are not working, I mean, I’m sorry, if you are currently working, then you may have already received your W-2 from your employer that shows your gross wages. It shows what was withheld in taxes, shows as far as 401(K) contributions and stuff like that. But if you are retired and you’re now drawing on assets, there are a bunch of different 1099s you could be getting. If you’re receiving a pension, that’s going to generate a 1099. Or if you’re drawing on your IRA or you’re have an annuity that you’re drawing on, that’s going to generate 1099s. And what those documents do is they tell you and the CPA and also the IRS, how much you withdrew in a calendar year and how much is taxed on those or all those dollars typically are going to be taxable. And also, it’s going to show if dollars were withheld towards taxes, so cleans up how much you’re going to owe at the end of the day.  
 Traditional IRA basis, that’s always good to know, but doesn’t apply in a lot of scenarios. That’s if you were doing non-deductible IRA contributions, that’s kind of a more complicated type of IRA scenario. But if you know what a non-deductible IRA is and you’ve been utilizing it, then you also know that you want to keep track of what your IRA basis is there. And then another 1099 that you could receive is if you’re drawing social security, you’re going to get that as well every single year too. So, those are the retirement income 1099s that you’re going to want to be thinking about or waiting for or grabbing them out of the mailbox. And then another huge category of 1099s, Radon, let’s go through these. That could come from savings accounts, investments or dividends. Let’s talk through those.  
Radon Stancil:All right. I got a question for you first, Murs. Did you talk about the fact that you’ll get one from a rollover? Did you cover that on the IRAs, 401(k)s?  
Murs Tariq:That one I did not, and that’s a big one. Say you retired, you had money that was saved into a 401(k) and you decided to roll it over to an IRA, what that is going to do is generate a 1099. A lot of times we think that 1099s are taxable documents and sometimes people get a 1099 in the mail for a large sum. Maybe it was a million dollar 401(k) that they rolled into an IRA and they immediately call the advisor or their tax person and say, did I just make a big mistake? Well, the 1099-R, if done properly signifies that this is a non-taxable distribution from a traditional 401(k) to a traditional IRA or from a Roth to a Roth. And so, that is also a 1099 that you’ll be receiving right around this time as well.  
 So, just make sure to make the distinction and remember what you did, because maybe you did it in January of the calendar year, but it’s not until February of the following year that you actually get the document. So, don’t be alarmed by that. If you did it right, which if you’re working with an advisor or a CPA, you probably did do it right, but that’s a 1099 that just signifies that transaction there.  
Radon Stancil:All right. Now we’ll talk about the one that he said savings and investments and dividends. So, this is one that your custodian, so if you were say a client of Peace of Mind Wealth Management, then your custodian primarily is going to be Charles Schwab. And this is a document that Charles Schwab will get to you, this 1099. And on this 1099, this is really in correspondence to this idea of I’ve got money that’s not in an IRA or a 401(k). This is in a brokerage account, could be a joint account, could be an individual account, could be a company account, doesn’t matter, it’s going to generate this 1099. Now, this 1099, I know with most custodians, I know with Charles Schwab, it is online. You can go get that 1099. And usually it’s going to be ready by, let’s call it February 15th. Sometimes they come out a little bit earlier than that.  
 But if you want to be safe and not stressed, usually by February 15th you should have a 1099. But what’s going to be on that is it’s going to say, what interest did you earn? Why would you have earned interest? Well, if you were in an account that was interest bearing, that’s going to be interest. Well, what would be a dividend? A dividend is going to be you owned a stock or an ETF, and that paid an actual dividend throughout the year. It’s going to list that as well. Then you’ve got on top of that, a capital gain. That capital gain could be a short-term capital gain. That means that the stock or the ETF, the exchange traded fund was sold in less than 12 months, that’s going to be a short-term capital gain. And then you could have what’s called a long-term capital gain that gets taxed at a different rate, and that is if it were held for 12 months or longer.  
 So, all of those things are really, really important for us to understand how those work. So, again, I think the big thing here in this particular area is to make sure that you are getting your 1099, because if you do not get a 1099 and file it, and offset some of those things like saying what are my call spaces, what are those kind of things, you could get a very big tax bill and you’ve got to go back and correct it. I’ve had this happen. In fact, it happened to me a few years ago where I didn’t tell my CPA about that 1099 because I just forgot about it myself. Everything got filed. Well, that 1099 that generates through Schwab, it gets reported to the IRS. So, the I R S says, “Hey, you owe a big, huge amount of tax,” as I had to go and amend my tax return.  
 I didn’t have to pay that tax, but it just made me have to pay an amendment fee and all that kind of stuff and stressed me out for a little bit. So, make sure if you’ve not gotten your 1099 from whatever custodian that you’re with, make sure that you do that. I will give you one caveat. There is another type of an account that could generate a 1099 that’s not an IRA or 401(k), and we utilize this sometimes and it’s a tax deferred account. For example, a lot of our clients have tax deferred accounts through a aspect of an annuity or a variable annuity or a traditionally fixed annuity. And it’s not an IRA or 401(k), but it would generate a 1099 if I took distribution out of that annuity. Because if I took that distribution and it was interest earned, I’m going to get a 1099 for that interest.  
 So, if you’ve got money in that category, expect to get a 1099 from one of those as well. And again, that just kind of comes into it could be a return of money, which means there’s no taxes and it could be that I have to pay some taxes on the interest. So, another one of those things just to look out for. All right, Murs, let’s talk a little bit about home ownership.  
Murs Tariq:Yeah. So, we’ve pretty much covered not an exhaustive list of all the different sources of income, but pretty much if you have money coming in the door from whether it’s wages, earnings, pensions, retirement income, investments, there should be some type of documentation. And that’s what we’re trying to get across the table here is that there is paperwork for a lot of these types of transactions. Now we’re going to shift to deductions. And not everyone gets all these deductions, but we’ve got a list of some of the more common ones that you can utilize to offset some of that taxable income, but you’re going to need documentation for those as well. So, home ownership, with the increase of the standard deduction, it’s changed things a little bit as to how people utilize deductions. But home ownership, if you have a mortgage or you have a loan on your home, then you typically are going to get a Form 1098, which is just a mortgage interest statement that shows how much interest you paid in the year and whether or not you could use that towards deductibility.  
 That’s going to depend on how you file. You always want to have a copy or records of your real estate and personal property tax records. And then receipts, this is actually a little bit newer one, everyone’s, or not everyone, but people are getting more conscious around having energy saving things in their house like solar panels and water heaters, and those have been incentivized by the government as well. So, if you have receipts for those, that can also help with your tax situation too. And just any other 1098s that you get in the mail, I wouldn’t throw them away. They can have some deductible value to them.  
Radon Stancil:All right, our next topic is charitable donations. One caveat to this conversation is if you don’t itemize, this is probably not going to affect you, but it is something you want to think about. So, if you are charitably inclined and you want to get a bigger bang for your contribution, so to speak, your donations, there are ways that you can actually get yourself into a way to itemize that could help you out on your tax return. Murs and I have talked about this a little bit with donor advised funds, where we’re actually able to take maybe two or three or four years of donations that we’re going to give away and take all of that deduction in one year. So, if you are sitting here listening to this and you didn’t know about that or you’ve not done that, you might want to talk to us, an advisor about that and say, “Hey, how can I get a better ability to deduct?”  
 Because if I donate money to an organization and I’m still just doing my standard deduction, I really get no benefit by contributing or donating money to that organization. So, if you’d like to know more about donor advised funds, reach out to us. You can go to our website, top right-hand corner, click on the button and schedule a call. That’s a great planning tool. You just can’t do it for last year. You have to do it planning ahead. So, that’s one of those planning ahead conversations that we need to have. But that is huge. If you are charitably inclined, that’s a conversation you want to have. All right, we’re going to talk about the next two, combine those into medical expenses and health insurance.  
Murs Tariq:Yeah. So, this comes back to what Radon said, which is if you’re itemizing, then maybe you could take advantage of this. But you do always want to keep track of your medical expenses, and that’s a amounts paid for healthcare, insurance, doctors, dentists, hospitals. You add all those up and that’ll help you and your CPA make the decision if does it make sense to itemize or not for the year, or does it make sense just to take the standard deduction. So, you want to have a good record of those so you can have a good conversation around that. And then also, health insurance Form 1095-A, if you’re enrolled in an insurance plan through the marketplace or the exchange, that’s a document that comes in basically as proof of insurance that you would use as well. But that’s really those two major ones there.  
Radon Stancil:All right, we got state and local taxes. The big thing there, just make sure you keep a record of it. I always take my taxes, anything that I’m doing, when it comes to whether it’s my property tax or my state income tax or any of those taxes, I always keep that on file just so I can give that to my CPA. The other one is HSA contributions. You should get a Form 5498. From that, make sure you’re giving that to your CPA so you get credit for it, as well as any contributions to your traditional IRA, because you can deduct that as well. So, anything that you’re putting in those types of places, you want to make sure you keep all those records and give that over to your CPA so that you get credit for that and get that in. It’s not going to really benefit you if you don’t talk about it and make sure that it’s put on your tax return so that you get that credit and get that deductibility. All right. I know we went through a lot here, Murs. You got anything else?  
Murs Tariq:No. I know that tax season can be stressful. I know that it’s a time that not most people look forward to, but I think if we’re prepared and we’re thinking about it throughout the year, it makes that hit when it comes in April, a little bit more palatable. So, if you have that file folder that you’ve been keeping up with, it makes the whole scenario a lot easier when that time comes.  
Radon Stancil:All right, everybody, we know we went through a lot. So, if you are trying to keep up with all what we said, don’t stress out, just go to our website, pomwealth.net. Go to the blog page and there’s a whole article written on all these things that we just went through. If you’re listening and you think, man, I’d like to talk to them a little bit about the donor advised funds, or I want to talk a little bit about where that 1099 is within the Charles Schwab platform, get on the website, go to the top right-hand corner, click on schedule call. Our calendar comes up. We would love to be able to sit on a 15-minute complimentary, no obligation phone call, and we’ll go through any of that with you that you have questions about.