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8 Tips to Pay Less Tax


Want to save on taxes? Matt and I discuss 8 different strategies that can help you keep more money in your pocket. We cover the first 3 tips in this first podcast, followed by 5 more in the next podcast.

  1. Use Index funds over actively managed funds. This is generally great advice, but also better at saving on taxes due toless turnover of holdings.
  2. Use ETFs instead of mutual funds. ETFs are a unique “wrapper” that avoids you from paying taxes on interest and dividends.
  3. Hold the right asset in the right account. Tax-deferred and Tax-free accounts (401k, IRA, etc) are great for bond funds because you avoid paying taxes on the interest and dividends each year.
  4. Tax-loss Harvesting. Make lemonade out of lemons by intentionally taking a loss and deducting it from your taxes or offset other gains and pay no tax.
  5. Tax-Lot Management. It’s important to sell the correct shares so that you take advantage of short-term or long-term gains/losses in your account.
  6. Savvy Rebalance. Use additional funds or tax-deferred/free accounts to do your rebalancing and avoid paying capital gains.
  7. Long-term Investing Horizons. Long-term capital gains are taxed at a lower rate than short-term. Invest for the long run!
  8. Charitable Giving. Donating appreciated assets helps you avoid paying taxes on capital gains.

Photo by Towfiqu Barbhuiya on Unsplash


Part 1:

[00:00:00] Mike: Welcome to financial planning for entrepreneurs and tech professionals. I'm your host, Mike Morton certified financial planner and charter financial. And on today's episode, I share eight tips and strategies to maximize your tax savings or to pay less in taxes. Now, in this first episode, Matt and I cover the first three tips.

And in the second episode, right after this and the podcast feed or the following five, enjoy the show.  

[00:00:30] Matt: Welcome to real financial planning broadcast on WK Excel. 101.9 in Manchester, 103.9 FM in Concord and 1450 AM. Everywhere. I met Robeson and I'm joined as always by Mike Morton the host of the outstanding podcast. I think it's outstanding because it frequently features me financial planning for entrepreneurs and the owner of Morton financial advice.

Mike, how are you doing?  

[00:01:00] Mike: Doing great, Matt. I'm impressed. You've got all the channel dials. They're dialed in all the numbers. That's awesome.

[00:01:05] Matt: It's exciting stuff. So for long-time radio listeners, you may know this, but WK XL dominates The center of the state. And it's 103.9 FM and 14:50 AM. So it's got a a pretty good listening area. But it just doubled it. And now covers the biggest city in the state of New Hampshire Manchester, the gate city.

I don't know what that even means. , as a New Hampshire person I should really know this. I don't know what that means. A gate from where to, where is it? Like the golden gate? It's not, I can tell you. It's not like the.  

I don't know. I don't know what it is. Anyway. The point is we're All over Manchester now, which is really super duper exciting. So my Morton, .

 About a month ago, we did a show end of year tax strategies and it felt premature. We thought maybe people are not paying attention to this, but the whole point of that discussion was they really should be because there were a bunch of things you could do in order to.

Get ahead of the game. And then you really had to do at that point, but now we really are coming into the home stretch of the year, and it really is time to pull the trigger on all the tips and tricks that you can do to save on your taxes. So you have prepared sort of a holiday stocking stuffer of. Tax goodies. And that doesn't sound like much. That's  

[00:02:23] Mike: It's terrible.  


[00:02:24] Matt: goodies is. And I think it makes me think of like an IRS auditor with a Santa's beard. But the point is you've got a sack full of ideas. We have some unknown number of ideas that we're going to cover. We're probably going to do this as a two-parter.

So here we go. Here we go. Mike Morton tax ideas. You start wherever you want to start wherever you want. This is your domain.  

[00:02:45] Mike: Yeah, we thought we'd go over some of these and they're not necessarily year-end strategies. So some of them are, or could be but a bunch of these kind of apply throughout the year. So these are ways that you can maximize after tax returns. So there are financial strategies to implement, to save money on tax.

[00:03:06] Matt: No, just to be clear, there are two words. When it comes to Texas there's avoidance And evasion, one of them is legal. You weren't talking about the legal one.  

[00:03:18] Mike: We are going to do the legal one here, there. Yeah. You might've read some things in the newspaper about tax strategies. In fact, Matt, it's funny. I was just reading literally this morning about Amex and their a tax strategy proposals to small businesses and how they weren't quite the legal variety.

So anyway,  

[00:03:36] Matt: Oh, no. Oh no. Okay. Everything we  

say here, listen for those. We're doing this, it's being broadcast, so it's not like the FBI is listening into us. We're not having our phones tapped here or anything, but a big disclaimer, this is all legal stuff. This is all good stuff you can do. Save on tax.  

[00:03:51] Mike: Yeah, exactly. Exactly. So let's just dive in. The first one is within your portfolio to favor index funds over actively managed fund. Okay. So we've talked about index funds in the past. You and I are both fans of low cost index funds. So just own the entire us stock market in a super low cost fund, or you own the developed markets in a low cost index fund.

And this is literally just tracking as you know, That in DC and it doesn't cost a lot. So there's not a lot of managers having to buy and sell things. You can use computers to do some of that have a few managers, but you're not actively doing research and figuring out what the buy and sell. You're just tracking the index.

So it keeps the costs down and the returns are fantastic. When you look out 10 years, the, I think it's, we're 70, 80% of actively managed funds under perform. The index. So the index is outperforming 80% of actively managed funds over a 10 year time horizon. So the results are really good as well.

So favor indexing, overactive manager. Why for taxes? Is that better? You have less trading. Okay. So it keeps the cost down. It keeps the trading down. It keeps taxes on those traits. Every time you have a. So when you're trading, you know this in your own account, you have a trade, you have capital gains.

You're going to pay taxes on that. Same is true with actively managed funds. So favoring the indexing over the active keeps your taxes lower.

[00:05:23] Matt: Now if you are in an active manner. Fund and you are accruing games, hopefully gains. And I mean in this market probably gains who knows next year we might be overpriced. So it might be a lot of losses. There are strategies that you've covered on this show for tax gain, harvesting tax loss, harvesting. So if you're not able to be, to make use of this trick, because you're in a lot of your assets are in actively managed funds, you should still pay attention to those gains and losses, right?

Because there's still stuff you can do.  

[00:05:53] Mike: Oh, absolutely. And let me say this too, Matt. Yeah, you're going to have gains and losses in your own accounts. And so you want to. And we'll talk about that a little bit later, too. You want to be tax aware when you're making trades. Okay. But these active, you don't have any control over that.

So the managers making trades and having taxable distributions, and it might be a terrible year for you to have that taxable distribution you're high in high income that year about to retire or something. So again, the actively managed, you're not really in control, whereas in your own account, you can decide when to take those gains or losses.

[00:06:26] Matt: Yeah, that's it. That was one of the episodes. For one thing, I am learning as I do these shows with you, and that was one of the episodes that was an eye-opener for me, that. Harvest tax losses. You can also harvest tax gains depending on your, the kind of year you're having. What kind of a tax bracket you're falling into.

So if that is perking up your ears, if you find yourself in this situation, check out the back episodes of financial planning for entrepreneurs with Mike Morton, all those episodes are in there. And that I found that one pretty insane.  

[00:06:58] Mike: Yeah, and I think we're going to get the tax loss. Harvesting is  

[00:07:01] Matt: oh, this is in your sack of goodies.  

[00:07:04] Mike: That's right. It's in there. It's in there somewhere.

[00:07:06] Matt: Is there anything chocolate in there?

That's not necessarily Tax-related because that's sounds better to me. You know what? This is, what we're doing is we're. We're being needlessly Christian about this. We should be a little bit more Jewish about this. This should be the Hanukkah show is what it should be. We've got eight, eight nights, eight Crazy.

nights of tax stuff.

All right.

[00:07:25] Mike: Crazy.

[00:07:26] Matt: But before we go full Sandler on this Adam Sandler, by the way, from New Hampshire, let's what's next?  

[00:07:31] Mike: I did not know that. Look, you're full of useful information as well.

[00:07:37] Matt: I let's define that another show, what I'm full of. Okay. Sorry. All right.

Number one is just in general being index funds, by the way.

Good general advice, right?  

[00:07:45] Mike: Yeah, exactly. For multiple reasons, but it also falls under this tax idea. All right. Number two, using ETFs exchange, traded funds rather than mutual funds. Okay.  

[00:07:58] Matt: going to have to refresh me on exchange traded funds  

because you've referred to them on the show before. It sounds interesting. Tell  

[00:08:04] Mike: Yeah, let me give you the refresher there's ETFs. So there's a mutual funds. So how, 50 years ago, I want to get into a low cost index fund or an actively traded fund.

I'm investing $10,000 in someone else managing that monitor either passively or actively. I put it into a mutual fund and the mutual fund has a fund manager and they're doing the trick. Whether they're following an index or they're doing actively, so that's a mutual fund. They settle at the end of the day.

And just a little logistics you run into you put in tent, you do it by dollars. I want to put in $10,000 into this mutual fund and it closes after the trading day. So between four and 5:00 PM. Is when you actually, now you own that fund and you buy it at the exact spot price of whatever's owned underneath.

So if they own 10 stocks and it's a hundred dollars and you invest 10,000, you will get to buy it at exactly $100. Okay. There's no spread. And like you and I negotiating, Hey, yeah, give me, I'll sell it for this or buy it for that. Okay. That's a mutual fund and ETF is relatively newer, about 20 years.

Give or take it's a different kind of rapper, but the exact same idea. I still want to invest in that. So I still want to put in my $10,000, it's a different wrapper for the same type of product. It buys you buy it during the trading day. Okay. So during, when the market is open is when you will buy and sell.

And it's literally just a different wrapper around the same thing. So you want to buy the S and P 500, you can buy a mutual fund version. You could buy an ETF. Okay. So then the question is what are pros and cons are different? What is what's the different wrapper mean? I told you one is that the mutual fund settles at the end of the day for exactly the price of the underlying assets ETFs have a little bit of a.

Between, that we're buying and selling something like I'm transferring to you, you say I'll sell to for this amount. It doesn't really matter. What's inside of it. We can just agree to whatever price you want to buy and sell the whole thing. Now, of course it does trade at the underlying value from if there's a hundred stocks in there and they're worth $10,000, you're going to sell it to me, for $10,000.

Cause that's what it's worth. But it's good to know that there's a little bit of a spread what's called a bid ask spread and they trade during the day. So you can get in and out of these things, just like you can. Mutual funds , you can only trade them once a day, whereas ETFs, you can buy and sell them like a stock, all day long.

I do not recommend doing that, but it is possible. So there's a couple of answers to what mutual funds versus ETFs are. I have not told you the taxes yet. Why it's good, but I'll pause there in case you got any questions on that.

[00:10:34] Matt: That makes sense. So just read this back, the whole idea of going. 50 years ago is that.

it's a, I'm going to stay with a holiday theme here. It a Festivus for the rest of us is that mutual funds gave individual investors a way to very easily get into the market participate. and  

 you don't have to be a . Stockbroker. You don't have to be a high wealth individual, and that was a real change. And so what you're saying is that the. Is just building on that basic idea, slightly different approach. And it has this feature of there is a spread, but you have more flexibility of trading during the.  

[00:11:12] Mike: So here's the other reason why the ETFs are more tax efficient than mutual fund. When you are buying and selling, people are buying and selling. , those mutual funds are these ETFs. And so the manager of the fund manager needs to give back cash to the people that sell it or taking cash and buy the underlying stocks for the people that buy the ETF.  

And so you have to match up these buying and selling opportunities. And just as in your own taxable brokerage account, if you sell something with a gain, you have a capital gains. So if the manager has to sell some of the assets to hand cash back to somebody, then you have a capital gains and everybody has to pay part of that capital gains. That's in the mutual fund.  

In the ETF wrapper. You're able to do these exchanges underneath and have less taxable events. And so therefore you save on taxes.  

[00:12:06] Matt: I got to say, this is one of the more complicated ideas. Encountered here on the show, because it feels weird to me that you could have, this is like the old, you could have your cake and eat it too, which I never understood. it's if you have it, you've eaten it. like how does want to have something and not eat it.

But the point is you possess it, you own it, but you haven't ingested it you, you haven't taken the distribution.

[00:12:33] Mike: So it is more tax efficient. Now we're not talking tens of thousands of dollars here. We're talking hundreds of dollars throughout a year, but it still is more tax efficient. So that's why I always default to owning ETFs in taxable accounts because of the tax efficiency.

[00:12:49] Matt: And it does this. How does this relate to the overall directional advice of your first point in general index funds tend to outperform actively managed funds, I assume. Are there. mutual funds that are actively managed, not actively managed is the same thing. True with ETFs.  

[00:13:13] Mike: Yeah, absolutely. So you can think of mutual funds and ETFs there's exact same universe on both sides. So which do you buy? It doesn't really matter that the fees are the same, what they own is the same. So look, here's the. Just use ETFs,  

[00:13:29] Matt: Just use ETFs,  

[00:13:30] Mike: low cost index funds, ETFs.

[00:13:34] Matt: Roger. All right. That's that is actually that's as straightforward as my brain can take our look. Let's bang out one more of these. We're going to have to take a break in a few minutes, but let's let's do one more. What's number three on your hit list here.  

[00:13:47] Mike: So we just were talking about holding ETFs. In taxable accounts, that's just your regular kind of brokerage account. Versus when I say taxable account mat, it's your checking savings, brokerage account things where you are paying taxes on that money. So if you get interest dividends, capital gains buying and selling, you have to pay taxes.

There's two other types of accounts tax deferred. Okay. That's your 401ks traditional IRAs or there's tax free. And that would be your Roth. Where your Roth 401k. If you see the word Roth or your HSA is also a tax free account. Okay. So three different account types.

[00:14:27] Matt: Now remind us we've also done a number of shows on this but just remind us for a second, the critical difference. IRA Roth.  

[00:14:38] Mike: Yeah, traditional IRA and Roth IRA. The traditional, the work with a capital T traditional IRA means it is tax deferred. I have not yet paid taxes on that money. I put in $6,000, but I have not paid tax. On it yet, eventually the government's going to want taxes. So that's why it's called tax deferred. You pay taxes when you take the money out.

So you're deferring taxes. Roth. IRA is you've already paid taxes on the money. You're putting your 6,000, but you've paid taxes on that. It grows tax free and you're never going to pay taxes again because you've already paid taxes. So the point is we're going to pay taxes once. Do you want to pay them now or do you want to pay them in the future?

Okay. And that's the difference between traditional.

[00:15:23] Matt: And I really enjoyed that show about kind of the, and I'm going to spoil the plot here. It comes down to pay taxes when you're in a low bracket. And So I think that's very useful in itself and again, people can look that up, but all right so let's what's the punchline on this third

[00:15:42] Mike: So this is location matters where you. Which assets can make a difference on your taxes, or, I'm only paying the taxes you owe, trying to save as much as you can and taxes. So let me give you a for instance if I have a bond, an IOU, okay. And I'm making 5% of that's interest payments.

So I get a, I put in a hundred thousand dollars and I get $5,000 a year of interest payments. Okay. Those interest payments I'm going to. Because it's interest. So if I'm in a 24% tax bracket, instead of getting $5,000, I have to pay what $1,200 or so. Okay. So I only get less than 4,000, if so, that's an, if I have it just in a brokerage account, if I take the same IOU bond and I have it in my traditional IRA, when I get that 5,000 of interest, I do not pay any taxes.

[00:16:37] Matt: And so then that extra 1200 bucks that you're not paying taxes.

continues to grow at whatever interest rate you're getting overtime. Eventually you pay taxes, but that's the idea of the IRA is that you're getting that boost. Deferring the taxes and growing with interest.  

[00:16:54] Mike: Exactly. So your interest payments and dividend paying. Our tax deferred or tax-free if they're in a traditional 401k, traditional IRA Roth 4 0 3 BS. Any of these kinds of tax advantaged accounts, the interest and dividends you get are not taxed. Okay. Maybe they're tax never taxed if an Roth, or maybe they're going to be taxed in the future.

So that's where the location. Of what you hold can be important now. So what do you hold where which types of assets do you hold? I just told you the bond example. So if you have high interest bonds, you want to put those in your tax free and tax deferred accounts for your point. It compounds, let that interest compound over decades and then eventually pay the taxes later on.

Okay. On the flip side, ETA, you just talked about ETFs, hold those in your taxable account. Long-term you know, oh, I'm going to hold the total us stock. In an ETF, just hold that in your brokerage account. Not too many interest payments and dividends coming off of that ETF. And it's just going to grow and compound and you get to decide when to sell it and take those capital gains.

[00:17:58] Matt: Yeah. Makes sense to me. And one of the takeaways that I'm having here, because I know a lot of this information is coming really fast to our listeners. Even the people who are listening on podcast and can hit that 15 second rewind. But I think the upshot that I'm getting here is there are lots of small things you can do.

Not really $10,000 savings here. It's a few hundred here, a few hundred there. That adds up. And so the idea is to package All these things together intelligently, and it really does get you in a position of saving thousands of dollars. Here's what we're going to do. Mike Morton.

We're going to take a very quick break for our radio listeners. We're going to end the podcast here. And when we come back in the next episode, we're going to talk about the rest of your grab bag of tips and tricks.

So we'll be back in just a minute.

Part 2:

[00:00:00] Mike: Welcome to financial planning for entrepreneurs and tech professionals. I'm your host. Mike Morton certified financial planner chartered financial counselor. And today is a continuation of our last episode on eight strategies to maximize tax savings or to pay less in taxes, Matt and I cover quite a few more tips in this episode.

Enjoy the show.  

[00:00:25] Matt: Welcome to real financial planning broadcast on WK Excel. 103.9 FM in Concord, 14:50 AM in Concord and 101.9 in Manchester. The gate city. I am Matt Robeson. I am joined as always by Mike Morton. The host. planning for entrepreneurs and the purveyor of Morton financial advice, a fascinating website.

If you want to read about the kinds of topics that we also cover on this show and okay. Here's what's going on for radio listeners. You may have been listening to us last week when we did part one of a two-part episode about tips, tricks, ideas, saving on your taxes. And now for podcast listeners, you've just hit next episode, because we're going to continue that conversation.

It's right up in your podcast feed and Mike Morton. Welcome back to continue our country.

[00:01:25] Mike: Yeah. Thanks, man. I feel like I was just here  

[00:01:27] Matt: Yeah, overwhelming sense of deja VU for all of us. But yeah, so in the first segment, in the first episode we covered the first three of these, let's just do super short recap because we have . Podcasts listeners who literally just sprawled over to the next episode.

So what were the.

[00:01:48] Mike: The first three favor indexing overactive management that will save you in taxes with turnover, less turnover that the is doing. Second is using ETFs instead of mutual funds that we dove into the difference. But the takeaway there is just use ETA. Instead of mutual funds across all your accounts.

They're great product get the exact same thing, but better tax efficiency within the.

ETF. And the final point was the location of where you hold, which types of assets, bonds, stocks, those sorts of things in your tax. Tax deferred or tax free accounts. It matters you can save, there was a recent Vanguard study that said you could save almost up to 1% per year on a taxes, the tax strategy, or have the boost of your returns by almost 1% per year on where you hold, which types of assets.

So go back and check out that episode.  

In those three.  

[00:02:48] Matt: that actually goes to the point that we finished the last episode. And I think a good launching point for this, which is each one of these things is maybe not on its own, a gigantic deal in your financial picture, but you can combine all of them together and make a pretty big impact.

I'm impressed that just that location. amount to a 1%,. It doesn't sound like a lot, when you look at your whole tax picture, that could be quite a lot.  

[00:03:17] Mike: Yeah. In each of these strategies, do I agree with you, Matt? Some of them may or may not pertain, some of them may be may or not be a couple of hundred dollars, a couple thousand dollars, but some of them could be when you hear they could be ones that saves you five or $10,000. That is very common in the clients that I work with.

What are, we'll find one of these strategies. That's oh my gosh, we're going to save $10,000. Just by doing that this year. Just to listen in  

and see if any of these might apply, cause it could be bigger than you think  

[00:03:44] Matt: Ask your financial advisor. Locational strategies are right for you. Side effects may include tech savings. All right.

Do not do locational  

[00:03:53] Mike: savings, more income,  

[00:03:55] Matt: We are, we're in danger of going off the rails and I'm driving us there. Let's get back on track. What is number four?

[00:04:03] Mike: Alright, tax loss, harvesting. And we've probably talked about this in the past, but the idea here is when you have losses, this probably isn't gonna apply too much to this year, Matt, we all know the market's been doing  

a fantastic again, almost 25% this year. W  

[00:04:17] Matt: That's nutty. Yeah.

[00:04:19] Mike: I know it's crazy. It's crazy, man. It's good. It's good times.  

[00:04:23] Matt: good, episode, by the way, for people to check out the question of is the market overheated and what do you do about it? If it is, that was another eye-opener for me. So go back into the podcast feed. We do some of these in the capital closeup podcast feed. I do. Listeners to that feed to get some of these, but most of these episodes can be found in financial planning for entrepreneurs with Mike Morton.

So go back and check out. That is the market overheated. I have a feeling this is going to be relevant in 2022. If not before then when you're the IB, like things are pretty hot right now, but go on. All right. Tax loss, harvesting, not relevant right now may be relevant  

[00:05:05] Mike: Yeah. And in fact, this is one of the things to keep an eye out throughout the year. So we often talk about the end of the year, but March, 2020, when we had that 30% dip within a few weeks, All right. That's when you want to take advantage of this.

So just knowing it, making some lemonade out of lemons, when you're parts of your portfolio down individual stocks or mutual funds or ETFs or whatever it is, has lost value, you put in $10,000. Now it's worth $8,000. Okay. So it's gone down. If you sell that, you take a $2,000 loss and you can deduct some of that from your tax.

Or offset other gains. Okay. So that's why it's a really, can be a really good strategy. And in fact, three it's really good strategy because if you have short-term capital losses, you just invested something three months ago, it's gone down in value. Okay. So you lost $2,000. You can sell that, be careful the wash sale rules, but sell that and take a, $2,000 loss and you can deduct that off your.

Okay. Up to $3,000 per year, straight off your income. Now you can also offset other gains, but it's something to really be aware of

because, um, you could save a lot in taxes depending on your  

tax bracket.

[00:06:20] Matt: So you might, for example, be a, you know, you might earn a relatively strong salary, but you're, you might have investments that don't do very well. A perfect match . There. Right? You could apply those losses on your investment side to offset some of your tax liability on your salary side.

[00:06:41] Mike: yeah, correct. Up to $3,000. So that's why it's perfect to just for that amount, because if you're in a 24% tax bracket there you just saved, 800.  

[00:06:49] Matt: Is there any carry forward on this or it all has to be the same year.  

[00:06:53] Mike: It's. Yeah, you can definitely get a good question. You can carry it forward So any losses you do not use on your taxes. So if you didn't offset gains, you can carry those  


[00:07:02] Matt: Well, that's a particularly useful thing. If you incurred losses, let's say in March of 2020, but now had a stunningly strong year. Might that be kind of relevant for some of our listeners right now in 2021, as they look back and they say, There's a whole bunch of losses that I didn't harvest last year.

I wonder if I could go searching and apply them to my gains this year.

[00:07:32] Mike: Yeah. So you just have to look up your taxes. So you would have had to in that March, 2020, you had to sell something. To get the loss, to incur that loss, know, it's not an actual and laws unless you sell, but if you did, and you had 50,000 of losses that you did not use in 2020, you could have done the same thing, the end of 2020.

Oh my gosh. It went back up, offset some gains with the losses. But if you carry that forward, absolutely. Take a look  

return and see what you carried forward and you can offset gains. In other  


[00:07:57] Matt: Well, it does sound like this is another one of where you really can't. Shape what you're and what your tax picture is going to look like in terms of, I mean, you were talking about location and the impact that can have, but also timing and that always evergreen advice pay taxes when you're in a low bracket.

And so it sounds like there's a lot of kind of mixing and matching and pairing. You just need to be, what was the term you used before tax aware? You need to. Uh, Keep an eye out and maybe this is what a good tax preparer will help you do, or a good financial advisor will help you do, there's opportunity.

It sounds like on both sides. If if you're in a high bracket. Great. If you're in a low bracket, well, there's opportunity in that too. If you've had gains, if you've had losses , there's ways to put those things together and improve your financial sector.

[00:08:52] Mike: Yeah, it's funny the way you say that. And it's exactly right. Matt is, again, thinking of my clients. There's always something where we're saving a few thousand bucks, some losses, some gains offsetting, something, looking for these different opportunities charitable donations.

We'll probably get to there's just a number of things that you can tweak and do to save a few thousand bucks here and there. It's unbelievable. It's also, it can be complicated. So we'll try to give you the high level stuff and see what  

to you. And, you You can do  

more research or reach out to professional.  

[00:09:20] Matt: I know it sounds rosy to say like, oh, there's opportunity ever. I mean, look, if you're taking a bath in the market or, you know, I'm not trying to pretend that everything is OSHA, but there are, there are opportunities again. one's going to say no to saving a few thousand bucks.

It kind of reminds me of one of my favorite movies, the distinguished gentlemen, have you ever seen the distinguished gentlemen, the Eddie Murphy?  

[00:09:42] Mike: no, I  

[00:09:43] Matt: look, we're digressing here. I will keep this very short. I will  

just say, if you want to actually know, like for people who thought that the west wing, the TV show, the west wing was some kind of a documentary.

Let me assure you. It is not, that is not.  

[00:09:57] Mike: I thought it was  

[00:09:57] Matt: That is not how things work. No one talks like that. That's how people  

talking to Aaron Sorkin world. That's not how people really talks to each other like that. That's not how things work in Washington, but, but as insane as this sounds, the distinguished gentlemen is the best look at how.

Actually work and operate in Congress that has ever been put on film. I promise you, I worked in Congress for a decade and there's this great scene where the Congressman goes to a lobbyist and he says, what's your position on such and such? And he's like, I don't know what should my passivity, cause it doesn't matter.

There's opportunity both ways. If you're for farm subsidies, I have money for you from the farmers lobby. If you're against them, I have money for you from the Baker's Alliance. The point is. You're saying there's opportunities, both ways. You just need to be very aware and look for them.

[00:10:43] Mike: Yeah, That's right. And we probably won't talk about it today, we just said tax loss, harvesting, there's also a tax gain harvesting, and I've got some articles and podcasts on that. So if you find yourself in a low tax bracket, you took a year off of work or something like that, where you're really not making much income,  

definitely look into do a  

Google search on tax gain harvesting

[00:11:03] Matt: really interesting because you know what, there are a lot of people who might be right now, too. You might've been unemployed perhaps, um, not by your choice or this might have been a had to take care of your kids and you weren't able to go to work and they were home.

So, But you might've still been invested in the market. You might had a lot of tax gains. And if you realize those gains. Ask your financial planner. See if tax gain harvesting might be right for you. Okay. Let's move on.  

[00:11:28] Mike: right, moving on. Hurt this one pretty quick. Hopefully this is taking advantage of tax lot management. When selling, What does that mean?

It means when when you're going, the tax loss harvesting. Great. I got some losses. I'm gonna go ahead and say.

You may have bought that stock or that ETF over a couple of times. So like I'm going to buy the S and P 500. Oh yeah. I bought it back in 2018. I bought it in 2020, and I just bought it three months ago. The exact same ticker symbol, S P Y for the S and P 500. So you've now bought, you've bought a hundred shares, three different times.

Okay maybe you just bought it last month and now not predicting this map. Let's say the market goes down, but before the end of the year, so you want to take advantage, say, oh, I heard about this tax loss harvest name. Let me sell some of that while you've bought three different lot. You own 300 shares because you bought them in three, $100, 100 share lots, the most recent ones, the one you want.

Because you just bought it. It's a short-term loss. So you want to sell that most recent one to get your short term loss. Okay. So it matters which lot, which shares specifically, you're going to sell right now. You might want to take the long-term capital gain. And the flip side is oh, I'll take the longterm capital gain when I sell, because that's tax at a lower rate than the short-term capital gain.

Or you might want to take the short-term capital loss. Instead of the long-term capital loss. Okay. But which ones specifically, you share that you've got to go in and decide that. So when you go to, fidelity or Schwab or TD and you click sell, you have to pick which ones to sell. And it's really important.

You pick the right ones. So you get the right either gain or  


[00:13:08] Matt: Do you ever get the feeling when you talk about the stuff that this is all a massive scheme between the tax preparation and CPA and lawmakers, and it's like, let's make this more and  

[00:13:19] Mike: Yeah, didn't I just say we could hit this one really quickly. talking. I was like,

[00:13:22] Matt: Well, yeah. Um, there, there. was, uh, There was a lot in there,, but I know, I think I get it.

I think I get it. I think again, you you might have choices in what you sell and again, it sounds like it depends, right? It's like you could take a gain, you could take a loss. It just depends on what your basis is.

[00:13:40] Mike: And whatever strategy you're trying to take advantage of, just make sure you pick the right thing to sell. If you've bought a fund or a stock or that ticker symbol, more than once,  

make sure you sell the  

one that you want.  

[00:13:53] Matt: Got it. All right. I mean that when you put it that way, it's pretty straight forward. All right. Uh, We've got about 10 minutes left in this episode and I know you've got a few more items in the bag. I'm not sure we have to hit absolutely all of them, but you hit when you hit the. Of the remaining and let's see how much we do on it.

[00:14:10] Mike: time. Yeah, we can do it We can always speed up a little bit, Matt, we could probably go a little  

[00:14:15] Matt: What does it work at? People just play this on their, on their podcast at like one and a half speed. Does that help us?

[00:14:22] Mike: We'll have to go in and slow it down. Alright. Tech savvy rebalancing. So we'd like to rebalance our portfolios. Stocks have gone up 20% last year. They're on a tear again this year at 25%. So maybe you're a little bit heavy on stocks versus your bonds and cash allocation. So to get back to the right balance.

You could sell longterm capital gains, make sure you pick the right ones and sells some of those S and P 500 index fund and buy some bonds or just have some cash, but then you'll take a long, you'll take that capital gains hit. Maybe you could do other ways of rebalancing to be tax efficient, use new money.

Okay. So in your 401k, you're adding a thousand dollars a month. If you've set it to auto by that target date. That's heavy and style. And maybe, you're a little bit overweight in stocks. We'll change that and say no, just buy the bond fund. So use new money to rebalance. Don't sell anything now in your 401k, won't matter because it's all tax deferred so you can buy and sell stuff to rebalance.

Okay. So you want to do any rebalancing there, but in your taxable account, don't just rebalance and sell stuff willing to. You're going to have to pay a lot of taxes. So be careful with how you rebalance use tax free tax deferred accounts to rebalance use new money to rebalance use interest in dividends to rebalance.

So take a look at the entire portfolio and make sure you're

not incurring a  

lot of taxes to do your rebar.

[00:15:47] Matt: I see, that makes sense. And this is the kind of thing that. There are a lot of tools. Let's say you're in a low cost index fund. I mean, Most of the places that you might be investing now give you that, that pie chart compare where you're at in your allocations to sort of the ideal mixture that you should have the.

Profile that you're looking for. And, you know, especially if you're in a target date fund, what the risk profile is that's appropriate to where you are versus that target date. So this should be relatively easy to do, although you've introduced in some previous shows some wrinkles to that. Maybe you want to be a little heavier or a little lighter depending on your investment strategy.

[00:16:30] Mike: Yeah, There's unfortunately, what I run across is it does get more complicated, because. , if most of your money's in that 401k, in that target date fund, great. Probably not too bad, but most of my clients have IRAs, they got their 401k, they got their IRA, they got the brokerage account and then they're married and their spouse has the same, all three different accounts.

And so there's no one picture, the 401k is at fidelity, the broker just over at Schwab. It is good and there's software out there that'll help you pull it into one pie chart, but you do want to look at that. It's really important.  

[00:17:01] Matt: Yeah, and it, it does get extremely complicated, extremely fast. Speaking of which we're rounding the home stretch here. All right. What do you got next?

[00:17:10] Mike: All right. Using long-term investing horizons. This goes without saying we've been talking about in the past. Invest money. Let it sit there for the longterm. That way you don't take taxable hits. You don't want to be changing in and out Of strategies in and out of funds and individual stocks.

Every time you do that, you're taking a hit and especially the. short-term capital gains versus long-term capital gains. So your short term is going to be taxed at your initial. Rate tax rate. Okay. So 24% bracket, maybe a 32% bracket, whatever gains you have are going to be taxed at that rate long-term capital gains or tax currently at 15, maybe 20%.

So obviously less than your income tax rates. So if you do sell things that have gained, make sure you pick that longterm capital gain or just let them ride and rebalance and  

your tax  

deferred accounts. Tax-free.

[00:18:03] Matt: Of course the. Way to avoid capital gains. Taxation is just, just die and pass on your assets as part of your estate. And you have those estate levels, which are pretty darn high. so, I mean, I'm kind of being tongue in cheek, but if if you're getting. Is to accumulate intergenerational wealth.

If you're a P a part where you're being to think about what your estate might be. I mean, That, and avoiding those capital gains, you know, there, that is actually part of the strategy.

[00:18:39] Mike: Oh, absolutely. Absolutely. So now I'll give you a quick story. A client that has his mother has a house, bought it for 25,000. It's now worth 800,000, right? Bought it, 45 years ago. So that's all appreciation. That's a long-term capital gain. It's an asset. If she sells it, you gonna pay long-term capital gain.

Taxes on that. So instead, eh, why don't we just hold onto that house And pass it down  

and that's  

all tax-free step using the step up  


[00:19:07] Matt: and of course, if you, if you find that you need cash, there's reverse mortgages and there's all kinds of tools you can use with your assets. So, you know, why liquidate and take the tax?  

[00:19:18] Mike: That's correct.  

Yep. Yeah. act like the  

billionaires and just borrow money. They'll  

[00:19:22] Matt: act like the billion, you know, there's there's a lot embedded in that we might, we might have to have a whole conversation about like, what have you just walked around and acted like a billion, not a jerk. I want to be clear. Don't walk around and act like A jerk, but you Yeah. A

good book name one.  

[00:19:38] Mike: quick.  

[00:19:39] Matt: that I've stumped. Mike Morton. All right. Lik I, now I'm  

[00:19:42] Mike: No, there was in fact, no, I can name one. The co-founder of us. It was just written up in the wall street journal. Yeah. Co-founder of subway was worth over a billion he's  


Connecticut, I believe and seemed  

like a really nice

[00:19:54] Matt: wow. Billionaire and from Connecticut and nice. That is a small Venn diagram overlap. I got to tell you. All right, let's hit it. Let's hit the last one.

[00:20:04] Mike: Alright, charitable giving. There's a number of strategies here in terms of taxes. Now, of course you're getting, you're giving money away supporting causes that you really believe in. So you're giving money away, but let's do it in a tax efficient way. If you're going to give the money away anyway, let's save as much as we can on tax.

So the first thing is to look at appreciated assets. So giveaway appreciated stock. So GI bought Amazon 10 years ago, for $10 a share. Now it's 2000. If you sell that shit single share and give away $2,000, then you're paying taxes on that gain almost $2,000. So you pay taxes and then you give away 2000.

Whereas you could just give the stock. Donated to a charity And they still get the $2,000, but you do not have to pay any capital gains. So you actually  

save, you know, 15, 20% right

[00:20:54] Matt: Oh, that is smart. And that's that's good stuff. And that's one of those things where it may not apply to you, but if it does, if this situation applies to you, this could be a relatively bigger chunk for.

[00:21:05] Mike: Yeah. That's a no brainer in a sense, like if you're going to give something away, give away appreciated stock. The charity gets the full benefit of the worth of that stock. And you  

don't take the capital gains hit on that. So that's always a  

good one to  

[00:21:18] Matt: That is a really good one. And of course, like I said, I, know, again, this may not, Ms. May not apply to you, but just kind of wrapping this up. It's the same thought that we've returned to throughout the last two episodes is that there is a real grab bag here. Some of these things are going to be spot on for you.

Some of them aren't and many of them can be combined And put together. And so you really do need to kind of scan down the menu. And there are things that we haven't even hit here. Um, but there there's a lot of options.

[00:21:48] Mike: Yeah. Yeah, absolutely. And I will throw out a teaser. We need to do an episode on the bunching strategy around charitable giving, because I mentioned this briefly in another one of our podcasts that most Americans are not getting any tax deduction for their charitable goals. Okay. 90% would not be getting any kind of tax deduction for their charitable giving.

So I can come, I can tell you a strategy that you can take advantage of that. So we can hit on that in a future podcast, but in general, around charitable giving, you want to take the advantage as much as you can for your  

own tax situation.

[00:22:20] Matt: we're brainstorming future episodes. People may not know this, but Mike Morton is also a font of wisdom about just general life what the kids call life hacks. I don't know why you want to hack your own life. That sounds awful and violent, but Mike Morton does the nice version of that.