5 Ways Professionals Over 50 Can Reduce Taxes in Las Vegas

2023-8_5 Ways Professionals Over 50 Can Reduce Taxes in Las Vegas

By Yale Bock

No one wants to receive a high tax bill—and especially not when you’re planning for retirement. That’s why I’m sharing these five tax planning strategies that can help Las Vegas professionals over 50 reduce their taxes and keep more money in their pockets. 

Estate Planning

One of the best steps you can take to minimize your tax liability is estate planning. Married couples have a specific advantage that’s established through estate planning called portability

This allows spouses to combine their estate tax and gift tax exemptions. Even if one spouse passes away, the other spouse can use their deceased partner’s unused exemptions to shelter their assets from estate and gift taxes. 

If you had your estate planning done before 2010 as a married couple, the top priority would be to check on the plan and revise it to include the section 706 portability exemption

Retirement Plans

While retirement planning can sometimes fall down the priority list of small business owners, it’s an essential strategy for minimizing taxes. Creating and contributing to a retirement plan can greatly benefit tax efficiency for small business owners by reducing their taxable income. 

High-earners can take advantage of a 401(k) plan paired with a cash balance plan. With a tax deferred 401(k), you’ll set aside part of your gross income, which lowers your amount of taxable income at the same time. Many employers also offer to match your 401(k) contributions up to a certain percentage, which could significantly increase your retirement savings. 

A cash balance plan grows annually through your contributions as well as through a guaranteed annual interest credit. Using these plans alongside each other allows for enormous retirement contributions that still qualify for tax deductibility.

Tax-Loss Harvesting

Strategically selling losing positions in taxable accounts can be very helpful in the quest for tax efficiency. This strategy is also known as tax-loss harvesting and has the benefit of deferring taxes when you purposefully sell an investment at a capital loss. This tax-minimization strategy is complex and typically utilized by investment of financial professionals. 

Contributing to a Regular IRA

If you don’t own a small business, you can contribute to retirement and still qualify for tax deductibility by contributing to a traditional IRA. 

If your income is under the traditional IRA income limits, your contributions are eligible for a tax deduction. The maximum income limit for single filers in 2023 is $83,000. Married joint filers had a 2023 maximum income limit of $136,000. Income that’s above those limits might not qualify for a deduction. 

Charitable Contributions

Contributing to your favorite charity can be helpful with a comprehensive understanding of the IRS rules. Each year, the deductions for charitable contributions change and are based on your filing status. For 2023, the standard deduction for married couples filing jointly is $27,700. Single filers have a standard deduction of $13,850 and heads of households qualify for standard deductions of $20,800. 

As a general rule, up to 60% of your gross annual income can be deducted in charitable donations. However, the type of contribution and the organizations you donate to may further limit those deductions down to 20%, 30%, or 50%. 

Tax-Efficient Investment Advice

Establishing tax-efficient strategies for your assets and investments can be complicated and time-consuming. As a Registered Investment Advisor, I help clients through Las Vegas, NV, and California analyze their finances to prepare for future tax liabilities and design custom strategies to help you keep more of their wealth through tax planning. To find out if you might be a good fit to work with Y H & C Investments, reach out to us at information@y-hc.com or schedule a meeting here.

About Yale

Yale Bock is the owner and operator of Y H & C Investments, a registered investment advisor (Nevada and California licensed) located in Las Vegas, Nevada. Yale directs all operations, from investment research and portfolio management and asset allocation to trading decisions, trade execution, risk management, and client communication. With experience investing capital personally and on behalf of his clients for 20 years, he aims to maximize investors’ assets—and do so as tax efficiently as possible. Yale has a passion for investing and enjoys the challenge of the markets, and has a proven track record of reliability and good judgment. He thrives on partnering to help people reach their life goals through investing: saving for kids’ and grandkids’ college, personal retirement, and company retirement plans (just to name a few). His clients can experience comfort and confidence that they have someone in their corner they can depend on to help them succeed in a responsible and tax-efficient way.

Yale earned a bachelor’s degree in economics and an MBA from UC Irvine and holds the Chartered Financial Analyst designation. He is married to Jhanine Ilana Aronson and together they have a precious teenage daughter, Diamond Emerald Bock. Outside of work, he enjoys sports (baseball, football, basketball), politics, and reading. To learn more about Yale, connect with him on LinkedIn.

Finding Hidden Gems in Microcap Stocks: Shifting the Odds In Your Favor

Investors give themselves a better probability of success by having a thoughtful process of researching, analyzing, and investing in microcap companies.  Today, nearly 50 million visitors a year come to Las Vegas to enjoy what the city has to offer, which obviously includes gambling.  Las Vegas is a city built on a tiny statistical advantage in the games of chance offered by the casinos.   Small shifts in the risk reward outcome moves millions of dollars into the pockets of the shareholders of the casinos.  The same way casinos hold a small advantage in the games of chance, this article describes actions investors can take to strengthen their investment process and shift their probability of success for investing in microcap companies.

Let’s start by understanding the challenges of active investing in both the larger market and in the microcap arena.  According to a study by Hendrik Bessembinder of the W.P. Carey School of Business at Arizona State University, from 1990-2020, 2.4% of all the companies in the market accounted for 75.7 trillion dollars of the wealth created in the stock market. Essentially, one out of 40 companies do the heavy lifting of generating great returns. In the microcap area, the probability of finding one of these entities is even smaller, probably much smaller.  We know we are up against a difficult task, and it is probably why it is best left to specialists or those focusing on this chase full time.  Still, investors come to the microcap area because it is possible to find situations where the returns can be substantial, and in some cases, life changing.

The first recommendation is to only invest in industries and companies where you are excited about the prospects.  One way to do this is to eliminate all the industries you have no interest in investing in.  Personally, I will very rarely even look at the automobile, airline, cannabis, biotechnology, early-stage pharmaceuticals, leasing, and many manufacturing entities.  Industrial entities are probably not going to get much of a look, either.  It means you say no to 90-95% of most companies.  The filtering is important because the largest microcap conferences like LD Microcap , PlanetMicrocap Showcase, or investment banking conferences often have hundreds of issuers presenting.  Online conferences will have smaller numbers, closer to 10-20 entities, but narrowing your search to only those you are excited about helps focus your time.  A healthy number is 10-15 companies you really want to investigate.

The second piece of advice is to go to each web site of the company you are researching and learn about the individual members of both the board of directors and the management team.  You are looking at the backgrounds of these individuals for proof they have a historical track record of creating value for shareholders of the companies they have led.  You will find that a vast majority of microcap companies have executives which have not proven they are wealth generators.  While you are researching the board and executive team, you should find out what percentage of the economic and voting ownership of the company these individuals possess.  You can go to the proxy statement to learn this information.  I look for percentages of over 25% or more, and even higher is better.  You can find situations where the founder will own 20-25% of the company just by themselves.  As part of this research, you should discover if there is a dual class of shares and what voting rights each class of shares is entitled to.  With multiple classes of shares, you will find situations where the founder might own 5-10% of the company but has 50.01% voting control.  I want situations where the management team has a history of creating great wealth, high ownership, and if they have voting control you can live with it, but the first two criteria are mandatory.

The third area to research is analyzing the balance sheet of the company, specifically the capital structure.  Before looking at the liability piece, look at the total number of shares outstanding.  In the microcap area, it is too often the case the total number of shares outstanding is not symmetrical with the size of the business.  Typically, it involves a total number of shares outstanding of over 100 million or more, and the revenue (top line) of the business is 20 million or less.  In these circumstances, unless the business sees tremendous year over year growth for a long period of time, equity holders are burdened with too much supply of equity.  There are high profile investors who believe you should look for situations where the number of shares outstanding is less than 10 million.  The scarcity of the number of shares available is what you are concerned about, especially relative to the size of the business.

On the liability side, it is important to know the debt profile of the company.  How much debt does the company have?  In how many tranches are the debt?  What is the interest rate on each tranche?  When does the most immediate debt mature?  Most importantly, what do the interest and asset coverage ratios look like?

As far as assets are concerned, value investors are always looking for situations where there is a great deal of cash relative to the market value of the company.  It is very rare, but there are some companies with more cash on the balance sheet than the current stock price.  These are occasions where a closer look is necessary, but it is often the case that the operations are burning cash.  Comparing the quarterly and yearly burn rate to the existing cash gives you an idea of the time horizon before more cash potentially needs to be raised.  You often see this with early-stage biotechnology and pharmaceutical companies.  One other asset to pay attention to is any tax loss carryforwards and their amounts.  Larger is better, and combined with a cash generating business, these assets are a strategic and potentially valuable for a long period of time.

Fifth, let’s turn to the income statement and the size of the business.  For a company to begin to attract institutional sponsorship, the top line needs to be close to a hundred million and headed towards five hundred or a billion dollars.  From my perspective, I want to see businesses with a top line of at least 50 million dollars or close to it.  Anything less than twenty-five million is going to be relatively small versus what is needed to overcome the institutional barrier.  Interesting situations can be discovered where a business might be at twenty million on the top line, and they are involved with an acquisition which would double or triple the top line and immediately improve the cash generation capabilities.  Clearly, that depends on the specific situation and the ability to execute and integrate.  We also should mention looking at 2,3-, and 5-year comparisons of the income statement to look at top line growth and margins.  Clearly, higher growth rates and improving margins (shoot for at least 10% on the operating margin level).  Let’s turn to cash flow and capital expenditures.

Sixth, I want companies that are either generating cash, or are systematically moving towards operating cash flow.  I also don’t want to see a lot of capital expenditure so you can potentially have a high free cash flow generating entity.   Comparing the balance sheet to the cash flow statement gives you an idea of how the working capital, cash conversion, and timing of the receivables and payables is taking place.  Many investors use adjusted EBITDA, EBITDA, and EBIT as proxies for cash flow from operations.  It is important to look at capital expenditure as well.  I typically avoid anything that is capital intensive, but each company is unique in this regard.

Finally, every listed company on a public exchange is trying to improve their business.  Those which involve a big change, like a management replacement, business model overhaul, spinoff, exchange or sale of a division, or stock buyback, are potentially worth investigating further.  If you incorporate all of these points into your investment process, it will help improve your chances of finding a hidden gem in the microcap area.  Like the casino in Las Vegas, improving your risk reward is potentially a source of value.

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