Silver Linings to Bad Years
“Be optimistic. Don’t be so grumpy. When the road gets bumpy just smile, smile, smile. Be optimistic.” - ANYWHERE BUT HERE
written by Alvin Sargent, directed by Wayne Wang
(4-minute read)
We never want to have a bad year in the Entertainment Industry. Unfortunately for some this bad year has lasted two years. By “bad” I’m not referring to low ratings or bad reviews. Heck, some of you would kill for a bad review right now. That means you worked! For the last year-and-a-half to two years, many in the industry have worked very little. If this year was especially cruel to your bank account, there are some positives that can come from it. Here are a few moves to consider making before the end of those years that weren’t as fruitful as you hoped.
ROTH IRA IS BACK IN THE GAME
If your modified adjusted gross income is less than $146k (Single) or less than $230k (Married Filing Jointly) then you can stuff your Roth IRA with the maximum contribution. For 2024, that amount is $7,000 (under the age of 50) or $8,000 (50+). Technically you have until April 15th to make a 2024 contribution. But the sooner you get that money in there, the longer you’ll have to take advantage of the tax-free growth potential.
Why a Roth? Why not contribute to a Traditional IRA instead? During this period of time when you’ve made less than you think you will in the future (A.K.A. a “bad” year), then your taxable income is lower. There’s a chance that you are now in a lower tax bracket than you will be later in life. Seeing as Roth contributions are taxed this year, it’s probably more beneficial to pay the lower tax rate now. Don’t wait until your taxes increase. Perhaps you’d rather take the tax deduction later, and that’s when you’d want to contribute to a Traditional IRA.
GAIN A BOUNTIFUL HARVEST
You may have heard of Tax Loss Harvesting, which is a strategy wherein you purposely take a loss on an investment in order to reduce your taxes. But this year you want to Tax Gain Harvest instead. Tax Gain Harvesting is the opposite. Let’s use shares of a stock as an example. You purposely sell that stock for a gain in order to be taxed on it now.
But why would you want to be taxed now? Because this is your atypical “bad” year, and your taxes are lower this year. This is especially true if you’re in the 12% tax bracket or lower. If so, then you may not be taxed at all on the sale. That’s right: a tax-free profit. If you have held that stock for more than a year, it would be considered a Long-Term Capital Gain. Long-Term Capital Gains are taxed at 0% if you are in the aforementioned 12% tax bracket or lower.
CONVERT IT NOW
Do you have a Loan-out Company? If so, you may also have established a 401(k), SEP IRA, or Simple IRA through your business. If you haven’t yet, you still have time! You can convert the money in those accounts to a Roth IRA, where it will then become tax-free. This is sometimes referred to as a “backdoor” Roth. However, you will be taxed during the year you make this conversion. You can also convert money from your Traditional IRA in the same manner.
Once again, if this is a “bad” year for you, then you will be paying fewer taxes. By paying the taxes on this conversion now, you will not be taxed when you decide to take that money out, assuming you follow all the rules. This could have huge benefits later on in life as you withdraw your money 100% tax-free.
DON’T WAIT UNTIL NEXT YEAR
If you have an expense that you intend to put off until next year, especially one that would fall under your Loan-out company, consider paying for it now. Are you working on a project where you’ll need a new laptop, camera, or lens? If you buy it by December 31st, then you can take the tax deduction this year.
Similarly, if you’ve used up your health insurance deductible for the year, consider taking any medical procedures or expenses by December 31st. Your annual deductible resets on January 1st.
While having a down year is not ideal, try to take advantage of it while you can. Once things turn around, you will thank yourself for having the foresight.
If you’d like more information about Financial Planning, you can schedule a complimentary meeting HERE.
Join the email list and receive the NO NOTES! newsletter with blog/video updates.
For disclosure information: Website Disclaimer
—
