Year End Tax Moves High Earners Miss Before Dec 31

Your Next Dollar: Money Management for High Earners

Host Andrew Giancola interviews tax attorney and CPA Jasmine DiLucci about common year-end tax mistakes high earners make before December 31st. They discuss

Key takeaways

• Jasmine DiLucci recommends quarterly tax check-ins rather than waiting until year-end to avoid rushed, suboptimal decisions.
• High earners hitting the 32% tax bracket ($200k single/$400k married) should prioritize strategic tax planning over passive W-2 withholding.

Main topics

• Year-end tax planning cadence
• Roth vs traditional retirement accounts

Notable quotes

"If you're taking a position that you have a business, doing it in two days is a really bad idea."

Conclusion

Listeners gain actionable, legally sound strategies to optimize year-end taxes

Transcript preview

Speaker 1 (0:00) We talk about employee equity all the time on this show, and done right, it can seriously help build your wealth. Done wrong, and you can end up with way too much riding on one stock, or a tax bill that catches you completely off guard. NerdWallet Wealth Partners CEO and Your Next Dollar co-host Ryan Sterling is hosting a free webinar all about employee equity. He is breaking down the top equity topics that they talk about with their clients every single week. like when to sell versus when to hold and expensive mistakes to avoid. Plus, we'll have a live Q &A at the end. So if you've been wanting to ask Ryan a question, this is your shot. Now, this isn't some 90-minute boring webinar. We're condensing this down to 30 minutes so you can get all the information in on your lunch break. The next webinar is October 15th. Click the link in the description to grab your spot. Speaker 1 (0:53) Today, we are talking about year-end tax moves for high earners and the mistakes that quietly can cost people thousands before December 31st. This is Your Next Dollar by NerdWallet Wealth Partners, and my guest today is Jasmine DeLucci. She's a tax attorney, a CPA, an enrolled agent, which is a combination almost nobody out there has, and she's built a huge following on YouTube with her channel Tax Leverage, where she spends her days debunking bad tax advice that is all over the internet. By the way, if you're getting value out of these episodes, make sure you subscribe to this podcast. Now let's welcome Jasmine to Your Next Dollar. Speaker 1 (1:36) So Jasmine, welcome to Your Next Dollar. Thank Speaker 2 (1:39) you. Speaker 1 (1:40) We are so excited to have you here and I want to kind of talk through, you know, a number of different things when it comes to taxes. This is one of those areas that I know a lot of our audience is super interested in. So this is going to be a really fun conversation. And the first thing I want to kind of chat through is, you know, we're getting towards the end of the year here and a lot of people start to think about their tax bill and kind of their tax situation. So is there any tax mistake that you see people make between now and December 31st? Speaker 2 (2:06) So I see a lot of tax mistakes. But if we're going to one, I mean, if I had to like kind of generalize it, I would just say, you know, maybe this isn't, it's just like people wait, right? So obviously everyone wants to pay as little tax as humanly possible. You know, if that's zero, that would be amazing. And, you know, we know that December 31st is the cutoff, right? But some of the tax positions, I think, I always think like people view tax very like black and white. They're like, I can do it or I can't do it. But a lot of the stuff when it comes to tax is it's a position. So if you're taking a position that you have a business, doing it in two days is a really bad idea. Speaker 1 (2:46) So Speaker 2 (2:46) it's like they literally just wait until the end of the year. Like if you're going to take a short-term rental business position, you're going to have a better position doing it today through the end of the year versus like doing it by the end of the year. Speaker 1 (3:00) And is there like a cadence that you feel as though is best for people to kind of meet with, you know, tax professionals or just make sure they're on the same page and start to think about this? And I'm Speaker 2 (3:09) gonna Speaker 1 (3:09) give you an example of why I'm asking this, because I think there is a very close friend that I have that last year made the most money they had ever made. They had about an $800,000 bonus. And when they got that bonus, they kind of knew throughout the year they were gonna get this. And they knew, you know, it was gonna come in waves and they were kind of pushing it till the end of the year. But they decided on December 15th, they were actually- going to try to figure out their tax situation. And so they rushed to try to do all these different things and obviously did not get it all done in time for them to be able to kind of optimize their taxes. So is there like a cadence that you start to think about this? Is it quarterly? Is it something that you want people to kind of, you know, meet with their tax professionals, you know, more frequently? Or how do you think about that? Speaker 2 (3:49) Definitely. It's definitely quarterly. So You know, if you go more than that, you can, unless you have like a lot going on, it's basically going to be excessive, right? Like how much do people actually want to think about tax? Like not that much. They want to think about it as little as humanly possible. But yeah, most people end up doing like annual. If anything, they'll do like after the year ends annually. But quarterly is just, it's like that perfect cadence, you know, just, and that's when your tax estimates are due anyways. Speaker 1 (4:14) Makes sense. And so we have, you know, our audience is a lot of high earners, you know, people making, you know, over $100,000, $150,000 per year. And so a lot of them are trying to think through, you know, where their tax moves are going to be and kind of some of the things they want to do by the end of the year. Do you see any common, you know, tax moves that high earners tend to miss? Is there something that you're seeing kind of happening time and time again? Speaker 2 (4:35) I mean, unfortunately, when you say high earner, right, I'm interpreting you said W-2 basically, right? I'm assuming most people are on a W-2. your options are limited unfortunately right and so um as far as missing it's going to be the big ones that you should like that are your the ones that will move the needle the most right i always go to real estate so it's really short-term rental and or real estate professional status those are going to be two like big swings that someone with a w-2 can take now what is that position i always like to remind people it's like technically that position is you're starting a business So you're technically not staying a W-2 earner if you're going to take that tax position. Now, I'm sure we'll get into this because this is the type of stuff I always talk about. And W-2 earners, unfortunately, are just very susceptible to tax scams, like illegal stuff. And so there's just a lot of that going on, especially right now on social media. And so it's tough because you hear, well, I could be a real estate professional or I could sign up for this legal, you know, I'm putting this in quotes. If someone's like listening to this audio, right, legal thing, that's totally illegal. And it'll just like wipe out my tax and I have to do nothing. And that's what I end up seeing a lot of W-2 people do. And then, of course, like three years later, they're in my office. Speaker 1 (5:48) And that's always, it seems like you see it time and time again on social media, which we could dive into. I think there's going to be some fun stuff. And I love the stuff that you do on that. I think it's just really, really fun to look at. Is there an income threshold where you see, you know, W-2 earners are obviously limited, and we'll talk about some of the things they can do here in a second. But is there an income threshold where, you know, people, once they start to hit this income, you really want them to start to have conversations or start to really think about their tax situation? Speaker 2 (6:13) Yeah, I think if I had to define. like a point in time i mean there's no magic number right but i would i would say you literally look at the tax bracket so you go from 10 to 12 we're not super concerned you go from 22 to 24 it's like okay we're that's when you start to notice it i would say once you hit that 32 tax bracket so it's like 200k single 400k married i would say it really makes sense at that point like enough money is going out the door you should really understand it and really ideally make a plan Speaker 1 (6:39) If someone's sitting here right now and they're thinking about, okay, well, there are some low hanging fruit that maybe I could potentially take advantage of, you know, something like the 401k, for example, comes to mind where I know a lot of hirers who listen to our show, they want to take advantage of different retirement accounts so they can, you know, optimize their tax situation. So if someone is listening right now. And let's say, for example, they didn't max out their 401k before, but they're making 200k a year, they have extra dollars on hand that they can start to invest, would you tell them to kind of think through, okay, well, maybe we should start to, you know, front load some of this so that we can get this funded before your end? Or how would you kind of think about things like retirement accounts? You Speaker 2 (7:14) can, I know that, of course, you know, again, going back to being a W2, what are your options? That's one of the big options, right? Retirement accounts. And so I know it sounds I always say like, it sounds really sexy. I think you just have to look at your situation. Like, is it really going to help? I'm not a huge fan of 401ks if we're not talking Roth. So all of the pre-tax contributions, I don't like it as a plan. I'm not going to say it never helps someone. I would say like, what's the goal, right? What's the long-term plan? And it's not just tax. It's also economics and like money and wealth. And so what the ideal plan, I would think, at least certainly for me, is... We make money now and we work hard, but ideally you're saving enough that you are putting it in things that are also making money, right? Speaker 1 (7:58) Like I think most people Speaker 2 (7:59) would agree that that's what Speaker 1 (8:00) they want to Speaker 2 (8:01) do. And so then if you're doing that properly and you thought about this in advance enough and you're doing it for enough years, you should still be making money in retirement and you should be still be making enough money that you're going to be in a high enough tax bracket. So then why would I want to put money away today? at what is likely a lower tax rate just because congress can Speaker 1 (8:22) also change the tax rate right or i'm just in the same income bracket again it Speaker 2 (8:26) works Speaker 1 (8:27) really Speaker 2 (8:27) well for someone who has that traditional setup where you just don't really save any money or you put it in things that don't make any money like just your home um you retire you literally make no money in which case like a regular 401k is definitely going to come in handy but obviously i'm on the other end of it where i see people pulling money out of their 401k And it's so painful. And you know, life happens. Like we're humans. You know, you need a down payment for a house. Your kid