Standard Tax Deduction 2021 - YouTube

Well today's Cardinal Lesson is about, “Whoo-hoo”  Taxes 2021 Standard Deduction. So we always start  

these programs with like ‘Why does this  matter? Why are you talking about this,  

who wants to talk about the standard  deduction?’ And I can tell you that it  

matters greatly, and it matters in the  work that I do as a financial planner,  

and it matters a lot for what average people, even  money wise maybe a little above average people-  

this matters a lot. So this is, let me just go  over what the numbers are. From since 2018, 2019,  

2020- maybe the numbers were a little bit less,  I think they're adjusted for inflation- but for  

a married couple filing jointly $25,100. For a  single person $12,500 is the standard deduction,  

and if you're over 65 you get an increase in  this. For a married couple it totals $26,450  

and for a single person $14,250. I can't tell  you the number of clients that I've served,  

and I help them with their taxes. I don't  actually do their taxes but I help them  

getting them to the CPA to do the taxes. And I've  got this one lady that she just keeps giving me a  

box of her medical and dental receipts, and then  she gives me all her little tax stubs for her car,  

and for some property she owns, and you know all  of that probably adds up to like $2- or $3,000.  

I helped her pay off the mortgage on  her house like six or seven years ago,  

so she doesn't have any mortgage interest for a  deduction. And so every year I go out there and  

she just insists on giving it to me. So I take  it, it's about $3,000 of deductions or what in  

the box. And she she claims this $14,250 she's  got that as a freebie when she starts the year.  

So just at the very beginning. If you're nowhere  near these numbers in itemized deductions,  

you can just stop keeping track of them,  you just throw them in a drawer in case you  

maybe have something middle of the year or  something. So don't throw them away yet,  

but you don't need to do all this deliberate  gathering if you're going to finish the year  

and you're going to be at a third of whatever  this is. The government in the new tax code  

that started three years ago or four years ago  is just giving you this on the top of the form,  

okay. So so the one thing we could talk about,  the hassle and then, or eliminating that,  

and then we can talk about: you get this  deduction from your income whether you have  

the deductions or not, so why does that matter?  Well it matters greatly because a lot of seniors  

live off of their Social Security. And  then some people will scoff at that,  

but they won't scoff at it when they're  actually doing it. Then when they're a  

little younger than that, oh that won't be enough  money to live off of, and well okay probably not,  

but what a lot of people don't think about is your  Social Security doesn't incur any income taxes  

if you don't have any other  income. So all of a sudden  

you know, like my Social Security, if  I'm successful in waiting until I'm 70  

and then my spouse is getting half of mine as the  spousal benefit. We're going to have about $6,000  

a month coming in and if I could figure out a way  to make that not taxable, $6,000 a month tax-free  

is no small amount of money, because if I, you  know if I was working and I needed to net $6,000  

a month i'd have to make like $10,000 a month  just to finish the month with $6,000. So a lot of  

people, and I just have this from experience, even  people with a lot of resources, a lot of money  

they just kind of live month-to-month,  year-to-year out of their Social Security.  

And then these same people, a lot of them,  will draw money out of their non- IRA Savings,  

or they're just Savings, where they don't have  to pay taxes on it first for a big expenditure,  

because they don't want to touch that IRA,  because they don't want to pay taxes. So the  

point I want to get across in planning is, if you  fall into this category or this category. So let's  

say you're a couple, I'm going to want to make  sure that your income other than Social Security  

is at least $26,450 in any given year because if  you let the year pass and your income isn't that,  

the benefit of this deduction is gone. So  most retired people are not used to the fact  

that they have some control over their taxable  income, because if you've worked all these years,  

people that are working, you're not in control  of your taxable income. It's just a function  

of your salary and what you earn from work. So  year to year, you just you get what you get,  

but when you're retired you're not in control  of your Social Security. You're just going to  

get that, that's going to be the same amount and  that kind of thing. But then you have this other  

bucket of money, which is called IRA money, 401K  money, that sort of thing and you're in control  

of how much of that you distribute to yourself in  any given year. So I'm just using this as a floor,  

I mean it's just saying that if you're here, if  you're a couple or you're a single person, then  

we need to make sure that we make withdrawals  from that IRA. If we have no other taxable income  

of at least this amount, and we probably want  to go over that some, just simply because  

you're not going to pay much tax on the  amount over that. I mean if you just ever look  

through the tax rates, which I do, um you may  want to go over that a little bit but not so much  

that you drive taxes on your Social Security.  And so just because we take money out of your IRA  

doesn't mean we need to spend it. We can just move  it over into another account and have it available  

in a later year for a large expenditure. I also  have people that don't do this, and they just  

they're not paying any taxes and they go year to  year, and then all of a sudden they say, ‘Man we  

we need $50,000 for something.  Or we got to go buy something.’  

And now they got to go to the IRA and not only do  we have to take out $50,000 we've got to take out  

$80,000 so we can pay $30,000 in taxes to have  $50,000. And now they got an $80,000 income. It  

it's not pretty and when the numbers get larger,  it gets worse, so I really want to make the point  

that this matters. And it's been my experience  that a lot of people are like my client,  

is they kind of know about this because the  standard deduction has been around since  

the first tax return I filed back in the 70s, the  1970s. But it used to be something like you'd get  

$2,500 for yourself and then you'd get $2,500  for your spouse, and then each one of your  

kids that were under a certain age you get  $2,500 for them. And then you, there was some  

amount of money they just put in, so it was a  thing. It was much smaller than these numbers  

and it was built up by your number of dependents,  and it usually for me didn't add up to enough  

that I could just quit keeping track of stuff.  But all the deductions I had were much more and  

it's still that way actually for me as I'm  still claiming and itemizing deductions.  

Many many people who are retired are using the  standard deduction and just because they don't  

have the things to deduct. Where they're not  using the standard deduction to its fullest,  

many of them, is they're not  taking deductions from their IRA  

in their 60s and just saving it somewhere else  making it after-tax money. So that would be a  

place they're not taking advantage of it, and  then for the more wealthy people who probably  

aren't taking this standard deduction because  they've just got a whole list of things,  

they’re what they're generally doing is they're  still leaving money in the IRAs. Which because  

they don't need it, because they're wealthy and  they've got all sorts of other sources of income,  

and they're thinking they're doing a good thing  by leaving the money in the IRA, but they're just  

building up a tax bomb for later years. Now, I  talked in my last video I talked about QCDs and  

Qualified Charitable Distribution, so all of  the people that I've spoken to in this video,  

and I hope that's you, can benefit once  they reach 70 ½ from using the Qualified  

Charitable Distribution. And even if you're not  there yet, even if you're in your 60s or your 50s,  

and we're doing financial planning, you can get  in touch with me. And we do financial planning,  

we can plan for giving in the future directly out  of the IRA, and we can take your charitable giving  

right off your tax return. So I did a video on  that last, and it is beneficial for you to go  

take a look at that. So I hope this has been  helpful to you today, and it's just generally,  

this is just one issue when it comes to your taxes  in retirement, but I think it's an important one  

to keep up with this from a planning standpoint.  I'm Hans Scheil and I thank you for listening.