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 to       less 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.

Find out more about Mike at https://www.mortonfinancialadvice.com and connect at https://www.linkedin.com/in/mwsmorton/

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


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Mike, how are you doing? 


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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 


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It's 


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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. 


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So anyway, 


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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. 


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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. 


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Because there's still stuff you can do. 


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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. 


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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. 


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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. 


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


Good general advice, right? 


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


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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. 


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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. 


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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. 


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


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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. 


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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. 


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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. 


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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. 


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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. 


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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.

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