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Tax Time: What You Need To Know For Tax Season 2023

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On this episode of the Retire Once Show, Johnathan and Melissa discuss important tax tips that you need to know before you file your taxes. This episode also covers how different income sources are taxed as well as tax tips for retirees. We cover everything from the fastest way to get your refund to how your Social Security Benefits are taxed.


0:00 – Intro

1:08 – Tax Tips for 2023

3:18 – Taxes by Income Source

3:35 – Taxes on Traditional IRA and 401(k) Withdrawals

5:28 – Taxes on Roth IRA and Roth 401(k) Withdrawals

6:47 – Taxes on Pension Income

7:08 – Taxes on Social Security Benefits

8:08 – Taxes on Life Insurance Proceeds

9:38 – Taxes on Investments

11:17 – Taxes on Dividends

12:06 – Taxes on Interest Accounts

13:09 – Taxes on Home Sales

13:57 – Tax Tips for Retirees

Read The Transcript

Taxes in retirement can become extremely complicated because income is no longer just one single source like a salary and typically involves different income types. So today we are covering everything that you need to know about taxes for 2023. So stay tuned cuz we got a great show for you.

Hello and welcome to the Retire Want Show. The show designed to help you get to retirement, but most importantly, stay retired. I'm Yo Jonathan Rankin. I'm the founder and CEO of Theor and Wealth Management. And as always, I am joined by my lovely co-host. Hi, I'm Melissa Rankin. Thank you so much for joining us, and may we have the best, most fun topic in the world to talk about today, what everybody loves to talk about.

Right. Taxes. Taxes. You know, it's that time of year where people are filing, everybody's gotta pay their. And, uh, yeah, we wanna make sure that we're helping you out to hopefully reduce that taxable burden over time. Uh, but before we do that, what do we want people to do? Mel, we want you to like us, we want you to follow along on this journey so that you never miss an episode.

That's right. Hit that subscribe button, make sure you follow along. And, uh, let's jump right too, cause we have a lot to get to today with what's coming up with taxes. Let's go over a few tips to keep in mind when you're filing. That's right. So the first part is just the fastest way to get your refund. A lot of people have this question, you know, they file, they want their money because they absolutely overpaid.

Uncle Sam's so fastest way to get your refund e-filing using direct deposit, make sure you're avoiding any heirs. I mean, the IRS does say that nine out of 10 of 10 refunds are, you know, mailed out or sent out within three. . So you know that's positive. Yeah, that's a nice, uh, number, number, not that bad.

Nine outta 10. Okay. Just make sure that you're e-filing using that direct deposit, and then it's usually sent out. You'll get that within three weeks. Another thing to note is if you are wondering where your refund is at, so you filed early and you're wondering. , where's my money? It's been longer than three weeks.

You can go to the IRS website. They have a tool you can click on. Where's my refund? That catchy name. . Yeah. They, Hey, you know what? If you wanna know where it's at, it's gonna be on there. This is how you're gonna find it, . So, uh, now one thing that we've heard from people is that, Their tax refund seems smaller than it has been in the past, and that's likely because of the fact that tax credits and deductions are now reverting back to pre covid, uh, amounts.

So you might see that your refund is smaller this year and it's because of that. So something to keep in mind. Kind of a bummer, but still That's right. Good to know. And then one thing we like to go over is there's a big confusion about. Deductions and credits and what the difference is between the two.

So just a quick refresher as you're doing your taxes, if you are doing them on your own. Uh, deductions, those help lower the amount of income that can be taxed. So if you have a tax deduction, let's say for an IRA contribution, we'll get to that in a bit, and that's $6,500. Well, that $6,500 is not taxed, whereas a tax credit, that reduces the final tax bill amount.

So if you had a credit for $6,500, well that is $6,500 that you are no longer owing to the government That. Essentially a credit to your taxes and not something you're deducting from your income. So be aware of all the different credits that are out there and deductions that you might qualify for, cuz that helps reduce the amount that you owe.

Great. So now that we've covered a few points on. Things to just keep in mind when you're filing your taxes this year. Let's go over taxes by different income types, because honestly there's quite a few out there. Let's start with some of the most common traditional IRAs and traditional 401ks. Yeah. These are, you know, obviously retirement accounts that you might have set up.

For, you know, 20, 30 years ago, and you got the benefit when you save the money, but now it's the time when Uncle Sam wants his cut always. So when you withdraw money or funds from these type of accounts, this is tax ordinary income rates. So think of the exact same tax rate as what your salary was. This is what that is taxed at, and.

That is anytime you take money out of a traditional IRA or traditional 401k, so if you have a traditional IRA or 401k, do you have to take the withdrawal so you can continue to defer the taxes? You don't have to take money out, but at some point you will be required to take money out. Uh, those are called RMDs or required minimum distributions.

Now that age at which you have to start taking that money out has changed. And now it's up to 73 years old. So, uh, you'll have to make sure if you're around 72 or 73, depending on when you turn that age, you'll have to determine whether or not it's due this year or next year. Um, and another thing to note is that if you do take money out before 59 and a half, so on the upper end, you have to take out in your seventies.

However, on the lower end, if you take it out before 59 and a. Then it is subject to a 10% penalty that is on top of the ordinary income tax rate. So not only do they wanna keep you on your toes with the changing of the age, but you're also going to be. Penalized pretty heavily. Yeah. If you take it out before 59 and a half, absolutely.

So you, there's this sweet spot where you don't have to take any money out and you can take money out without a penalty. 59 and a half to about 73. Now that's kind of the sweet spot age where you can defer if you want or uh, or you can take money out without penalty. Okay, so that's one of the most common, let's go into Roth IRAs and Roth 401ks.

So with these type of accounts, the money was taxed when you contributed the. So when you put money in, it was just straight out of your bank account essentially. And now that the money has grown, you can withdraw that money and there's no taxes on that. So there's tax-free growth and tax-free withdrawals on Roth accounts, but there are two caveats with these accounts.

So you have to have held the Roth IRA for at least five years before you can take tax free withdrawals. Now you can always take out the money that you con. . So if you contribute $6,000, you could take out $6,000 at any point tax free, but you can't take out any of the gains without the, either the five year rule, or if you are under the age of 59 and a half and you take out some of the gains, that's where that 10% penalty comes into play.

That penalty's always gonna come in. That's right. So there it, it, there is some confusion on that, you know, just because you've had the account, so you've had the account for 10. But you're still under the age of 59 and a half. You cannot take any of the gains without that penalty. So unlike traditional accounts, there are no RMDs because you've already paid the taxes.

That's right. Now, however, you'll still get the penalty if you do it before the Yep. Magic number. That's right. Okay. Moving on from those. What about pensions? So if you are lucky enough to have a pension Yeah. These are kind of a way of the past. Yeah. Whether it's. You know, pension from your employer or even a government pension, those are tax at ordinary income rates.

So think about it. It's just like a continuation of your salary. You know, it's just taxed at the same rate that that was taxed at. So pensions pretty straightforward. Exactly. Okay. What about social security? We get this one all the time. It's a huge one. . How much of my social security is going to be taxed now?

You will have to pay up, you know, so your benefit might be up to 85% taxable, depending on what is called your provisional income. So that sounds fancy. It is fancy. So to calculate your provisional income, add up your gross. Any tax free interest that you're getting and 50% of your social security benefit, and that is defined as your provisional income, and that will d.

What percentage of your social security amount, if any, is taxed? And so we put together a chart that you can see right here that will determine whether it's no taxes on your social security benefit or up to 85% of that benefit is taxed. And again, that goes off of your provisional income. Yep. And there is a great tool on the IRS website that we will link to in the show notes that will help determine how much your benefits, our tax, will help you determine that provisional.

Perfect. So now that we've covered social security kind of, uh, what about life insurance proceeds? So there's a big misconception with life insurance because the thought is, well, I got life insurance proceeds that that's always tax free. . Now, if you are receiving those, that life insurance money from a death benefit, then yes, those are likely tax free.

But if you are taking money out, let's say you are the owner of the policy, you hold the policy and you surrender it for cash, then things become a lot more complicated. It's not as simple as it's all tax free. It's not. So there is another great tool by the irs and you know, I know a lot of people think, I don't wanna go to the IRS's website.

Maybe they're tracking me. Maybe I gotta start auditing me . No, these tools are great. Use these tools. This one helps determine whether or not the money from those life insurance proceeds are taxable or not. And this could be a really big one, especially if you're doing taxes on your own. I know CPAs, they know the stuff, but if you're just doing it on your own, then you really wanna make sure that you're under.

All these different, uh, different facets of whether it's life insurance proceeds or social security, you name it. So use that tool, check that out. I mean, really when it comes down to it, what better place to go though than the IRS website, that's where you're gonna look for your refund, like we've talked about.

Get lots of questions answered. I mean, it's gonna be probably one of your biggest resources. It is, but it is a, it is a tough site to navigate, so that's why we'll link to the tool, right. You know, in the show notes there. Absolutely. So, moving on from, The IRS website. . What about the sale of investments, stocks, bonds, mutual funds, things like that.

So if you just own stocks or bonds or mutual funds or any sort of investment just in a taxable brokerage account, then the taxes are gonna be based on how long you've held that investment. So if you've held it for longer than a year, Then it's going to be taxed at what's called long-term capital gains rate.

Now that could be as low as nothing or as high as 20%. And then depending on your income, there could also be a 3.8% surtax on top of that rate as well. So, um, that gets a bit hefty. It does, you know, but you think about it is lower than the ordinary income rate. So I guess there is the, there is that benefit.

But I know it's controversial cuz some people look at it as being taxed twice on this money. . Yeah. So what if you held it for less than a year? Cuz you mentioned the year. So if you held it for less than a year, then it is taxed at ordinary income. So you wanna make sure that if you are making trades in your portfolio, that you are being conscious of whether or not it's a long-term taxable.

Event or if a short-term taxable event, because that'll change it quite a bit. Mm-hmm.  that something to keep in mind. Yep. And you know, we know that especially over the past year, the market has not been great and not everything always ends up as a gain. So if you did sell something at a loss, then you can use those losses to offset capital gains plus up to $3,000 of other income.

So that's tax loss. Harvesting is what we've, uh, utilized, you know, towards year end. A lot of people did. But just no losses can be carried forward indefinitely each year, but only use up to $3,000 each year. So let's move on to a dividend income type. What about dividends? So with dividends, there are two types.

You can either have qualified dividends, which are the most common or non-qualified dividends. Now qualified dividends, these are tax capital gains rates, so it's a little bit more favorable, whereas non-qualified are tax at ordinary income rates, and you're gonna be able to tell based on your 10 90.

Which type of dividend you you received. Now when you're buying the investments, just keep in mind that some of the types of investments that pay non-qualified dividends that are gonna be more expensive come tax time are things like real estate investment trust, or REITs, or master limit partnerships, which some people call MLPs.

They typically have higher income rates, but because they're not structured as a corporation, they're not considered qualified dividends. So just keep that in mind. So moving on from dividends, what about checking savings? Oh, finally, after years, you can finally get some yield on you. It's about time. Thank you.

To the Fed. Yes. Uh, well actually thanks, inflation, I guess. But either way, you can finally get yield either way. A good thing. Yeah, you can get yield now on CDs, money markets, savings accounts, checking accounts, uh, but all of that money. That you get as income is tax at ordinary income rates. Uh, now this also does apply to corporate bonds.

So one thing to keep in mind is that if you buy a corporate bond and you're getting that ongoing income rate, that's taxed ordinary income. However, if you sold that bond for a profit, now that. Profit is taxed at capital gains rate. So there's two different types of taxes that you have to be aware of when dealing with that.

So, but traditionally, any sort of income you're getting on CDs, money markets, checking. Savings, ordinary income rates, again, another tricky one. I feel like they're, we're kind of rounding 'em all up with, it could be this, it could be that. So just pay attention. Is anything simple in our tax code? I don't think so.

Wouldn't be taxes if it were easy? No. What about if you have income from selling your home? So if you sold your home last year, uh, then and you, well, one thing to keep in mind, if you used it for your primary residence, Two outta the last five years, then you can actually exclude up to $250,000 of the gain, or 500,000 if you're married, filing jointly.

You can exclude that gain from your income completely, and any gains in excess of those levels are taxed at long-term capital gains rate. And then one thing about home sales is that you cannot deduct losses. So, Unfortunately, unfortunately, I mean, you know, going back to 2008, 2009 when housing prices were, you know, dropping dramatically, maybe that applied then, I don't know if that applied after a strong housing market, but for some, maybe it does.

Unfortunately, you can't deduct those. So now that we've covered, , all kinds of different income types and how that might affect your taxes. Let's go over a few tax tips for retirees. Let's round it out with some, some positive, uh, good stuff. I guess, if you will. Let's go over the extra standard deduction for seniors over 65.

That's right. When you turn 65, uh, not only do you get Medicare, but you also get a benefit from the irs. They give you a larger standard deduct. And which means that it'll, going back to what a deduction is, it'll reduce the amount of your taxable income. So, uh, it just reduces it by a higher amount. So it's just one nice thing.

If you turn 65 this year, congratulations. You got a higher standard deduction. Yay, a positive. . And another tip for retirees is spousal IRA contributions. That's right. If you are, you know, let's say one spouse retired, or one doesn't work, one thing to consider around tax time is what's called a spousal IRA contribution, where one spouse can make contributions to an IRA for the benefit of the other spouse who doesn't work or has a.

Income. So you can still contribute to an IRA if only one member of the household retires. And this allows you to reduce that taxable income if you're contributing to, let's say a traditional ira. Now, there are rules, restrictions that still apply. There's always rules around it, just like normal, but just keep in mind right now with taxes coming up, it's a great way to reduce your taxable income if you're able to qualify for that.

So another great tip. That's right. And then. One big last blaringly good tip I guess if you will, is the tax deduction for Medicare premiums. Yep. If you become self-employed after retirement, then you can actually deduct the premiums that you pay for Medicare Part B and Part D, and the cost of supplemental Medicare policies or Medicare Advantage plans.

Uh, now that deduction is available, whether you itemize or. You don't itemize, but it is not subject to the 7.5% of your adjusted gross income test that applies to normal medical expenses. So it's a great benefit. Now, you cannot claim the deduction if you're eligible for an employer sponsored plan, even if you're retired, but you're eligible through your spouse's employment.

So just keep that in mind. And this is really popular for people who say you retire and you decide you're gonna do some contract work, or you want to turn your hobby. You have a part-time job and you become self-employed. So now we covered a lot of taxes. Uh, it's not everybody's favorite topic, but it's something that we all have to deal with, especially this time of year.

You know, but our goal is to help you as you plan your retirement journey, because we know that it's not as easy as just, Hey, I've got a salary now and that's what is paying my lifestyle. You've got different income sources, all tax different ways, so you know, our goal is to help you simplify that process.

Because every situation is unique. It is. And so if you need help, you can, uh, you know, reach out to us. We've got links down in the description below. Uh, but before we get out here, we want you to do one thing, right? Mel, we want you to subscribe. Hit that button. Subscribe, join us continuous every single week.

You know, we've got videos coming out. Um, and you can head to retire once, show.com if you have questions for us. With that, I'm Jonathan Rankin. And I'm Melissa Rankin. Thank you so much for joining.

Registered Representative of Sanctuary Securities Inc. and Investment Advisor Representative of Sanctuary Advisors, LLC.– Securities offered through Sanctuary Securities, Inc., Member FINRA, SIPC. –  Advisory services offered through Sanctuary Advisors, LLC., an SEC Registered Investment Advisor. – Theorem Wealth Management is a DBA of Sanctuary Securities, Inc. and Sanctuary Advisors, LLC. This communication has not been reviewed for completeness or accuracy, does not necessarily reflect the views of Sanctuary Securities, Inc. or Sanctuary Advisors, LLC., and is not a recommendation or endorsement of any product, service, or issuer. Third party posts do not reflect the views of Theorem Wealth Management or Sanctuary Securities, Inc. or Sanctuary Advisors, LLC., and have not been reviewed for completeness and accuracy. All further communications from this representative must be sent from and received by johnathan@theoremwm.com. For additional information, please refer to one of the following consumer websites: www.FINRA.org, www.SIPC.org.

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