Welcome to how to retire on time, the show that answers your questions about all things retirement, including income, taxes, Social Security, health care, and more. This show is an extension of the book, How to Retire On Time, which you can grab today on Amazon or by going to www.howtoretireontime.com. My name is Mike Decker. I'm the author of the book, How to Retire On Time, but I'm also a licensed financial adviser, insurance agent, and tax professional, which means when it comes to finance, your money, all of the above, we can pretty much talk about it all. Now that said, please remember this is just a show.

Everything you hear should be considered informational, as in not financial advice. If you want financial advice, you can request your wealth analysis from my team by going to www.yourwealthanalysis.com. With me in the studio today is David Franson. David, thanks for being here. Yep.

Glad to be here. David's gonna read your questions, and I'm gonna do my best to answer them. You can text your questions in to (913) 363-1234, or you can email us at heyMike@howtoretireontime.com. Let's begin. Hey, Mike.

I just got my taxes done. Any recommendations on things to look for in a return? Yeah. This is a tough one because there's so much variability with it. I would start by saying, look at your ten forty, and anywhere you're paying taxes, ask yourself, why are you paying that tax?

Are you putting money into something that's going to exacerbate that tax issue? Let me explain. Yeah. So are you paying tax on w two income? That's an okay tax to exacerbate or to grow.

Right? You don't just not pay taxes on w two income that you were. You have to pay taxes. Now you could lower that, I guess, in some way by putting more money into your four zero one k, but you're just kicking that can down the road. Yeah.

So maybe it makes sense to pay the taxes now and do your Roth contributions or whatever it is. Sure. When you look at like lines two and three on a ten forty, those are typically dividends reinvested. And so a lot of old school investors, I say old school investors, they're just they're doing an old school methodology of trying to grow their wealth by buying dividend stocks and reinvesting the dividend. Okay.

Every time you buy a dividend stock in a brokerage account and you reinvest that dividend, guess what? You're paying taxes on that. As your position grows, guess what? You're paying more taxes on the dividend. Now you might say, well, Mike, I want that dividend to be my income later on.

Got it. Okay. You're growing it for a very deliberate reason, but at some point, you're gonna stop growing the dividend position and start using it as income Yeah. And then you're just doing income tax. You're basically creating a taxable income stream.

Yeah. So that's fine. You are at risk for taking the dividend, or if tax rates were to change, now you're at risk of, you know, taxes go up, your net of tax income goes down because you're getting taxed on the dividend, but if you're okay with that risk, then maybe that makes sense. The dividend reinvestment from a non qualified like brokerage account could be creating a bigger issue, whereas you could maybe move funds over to a Roth, do the dividend strategy. If that's how you wanna take income, that's fine, but taking dividends and reinvesting dividends in your Roth or your IRA grows your dividend position.

Mhmm. And then eventually you can transition it to where the dividend is paying income, and now you've got a little bit more control over your taxable situation. Okay. With me so far? I am.

Yes. Makes sense. So every line in your ten forty is creating a taxable event. Why is it there, and are you exacerbating the tax issue? Let's talk about landlords.

Ah. Okay. So landlords, if you're looking at schedule e, and that goes up ten forty, but looking at your schedule e, are you creating the tax issue with one, taxable income k. On your properties, because you're getting taxed on the rental income. Okay.

Two, are you creating a tax issue by depreciating your assets? It's nice to depreciate your rental property until you can't depreciate anymore, and then that benefit goes away. And then if you were to sell it and not do a $10.31 exchange into another property or another like kind option like a Delaware statutory trust, you've got depreciation recapture tax. Oh. So you're basically getting a tax benefit now to just pay a tax later on Okay.

Which can stink. So, I mean, do you want to keep depreciating the asset, or do you intend to sell the property? If you intend to sell the property, then run the calculation to say, do I really want to depreciate the asset, or am I trying to sell this thing later on? And then what's the threshold, and what would the anticipated sale price be, and what are the gains look like so that you can make an informed decision later on? And then you need to understand about the appreciation of the property too.

Yeah. So this isn't necessarily in your tax form, but if you have rental properties, you're depreciating the asset, which is great. But if the asset is appreciating, then again the gains of the asset, if you want to sell it and put into something else Uh-huh. Other than a ten thirty one exchange to a like kind option like a DST, then you've got this whole other issue of, okay, there's some neighborhoods you can invest in where the rental properties are more likely to appreciate in value than other ones. K?

I had someone to call me a couple of weeks ago, say, hey, I've got these properties in Oklahoma. What should I do with them? I said, what do you mean? He says, well, they're they're great cash flow, but they're not appreciating value, and real estate is supposed to cash flow and appreciate. Right.

I said, well, no, it's not always supposed to, you hope for. Yeah. He goes, yeah, got sold a bag of goods that's not paying out. I said, got it. And then we talked about how we can sell the properties effectively, make a couple of adjustments there.

We looked at the tax returns, see what benefits he's gotten from it, set things up so that he could then sell it, and then we're exploring the options for does it make sense to roll it over into a property that's at a reasonable price Mhmm. That can cash flow, and the properties are likely to continue to appreciate in value, or move it into something simpler like a Delaware statutory trust where you maintain your cash flow. It's in something that should appreciate in value, and he doesn't have the landlord difficulties. Uh-huh. Right?

You know, doesn't have to deal with tenants, trash, and toilets, and all that. I mean, if you're a landlord, you should be compensated for your work, but if you're done working, then maybe you want a more passive exit strategy. So my point being is, in finance, I think we as professionals handle or spend too much time looking at solutions, when really we need to be looking for problems. We need to spend more time looking at problems, and then okay here's a problem, and here's another potential problem, and here's a future problem, and let's understand the problems, and are we building is the solution, quote unquote Yeah. Actually gonna result into a bigger problem?

Yeah. Once we understand the problem landscape, then we can start to map out the solutions and the efficiencies. Okay, I was a Boy Scout years ago. Oh, yeah. Okay.

I guess I'm still a Boy Scout for life, right? Probably Eagle Scout. Did this 50 mile canoe trip years ago, and it was just the funniest thing, because there are really three types of groups. There was type one, which they did not care about efficiency, and in the canoe they were both on one side, they both paddled on the left side, and then they both paddled on the right side, and they felt the thrust moving forward, but they just mended left, right, left, right. They eventually got there, but I think they exerted way more energy than anyone else.

Right. K? Then you had the second group, which looked for currents within the river or the I mean, there's kind of a lake river, really really big. Yeah. But they looked for currents, one pedal to one side, one pedal to the other, so they were kind of more succinct in trying to just have a consistent sustainable flow, and they weren't turning a lot.

They were more direct and efficient in their path. The third group, they connected with another group, all of them were paddling together, so four paddles now, similar momentum moving forward, and they put up a sail. Oh. So they used the currents, they used other people's help, they specialize on one type of paddling, so left or right, and they had a sail to use an additional other tailwind Yeah. The efficiency.

Yeah. Yeah. We're so focused on I wanna learn things myself, I wanna do things myself, They don't understand that connecting with other resources or other tools, other markets, to just expand the options actually can benefit you more. Wide knuckling this or strong arming that and saying I'm just gonna learn and bubble and tumble through it, has a hidden cost that many people don't see. Right.

And that's why we feel it's so important to take a comprehensive and holistic position to the efficiencies. That's all the time we've got for the show today. If you enjoyed the show, consider subscribing to it wherever you get your podcasts, just search for how to retire on time. Discover if your portfolio is built to weather flat market cycles, or if you're missing tax minimization opportunities that you may not even know exist. Explore strategies that may be able to help you lower your overall risk while potentially increasing your overall growth and lifestyle flexibility.

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