LIVE REPLAY: What Are 10 Easy Tax Deductions and Credits to Cut Your Tax Bill?

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00:00:00

In a world where crushing debt keeps you trapped, where living paycheck to paycheck has become your new normal, and where the dream of retirement seems impossibly out of reach, there's hope. Join financial evangelist Ralph Estep Jr. A man who's walked through the fire of financial failure and emerged stronger on the other side.

Welcome to Ask Ralph, the show where real world experience meets biblical truth to break the bondage of financial despair.

Get ready to take control of your money, break free from the financial stress and align your resources with God's purpose for your life. This is Ask Ralph with Ralph Estep Jr.

Ralph Estep Jr
00:00:40

Have you ever felt like you're paying more taxes than you should?

Do you struggle to find ways to reduce your tax burden? Well today, we're going to discuss 10 easy tax deductions and some credits that can help you cut your tax bill. Plus, we're going to explore the benefits of universal life insurance versus the traditional 401k plans and we're going to uncover some energy credits available for 2024 and 2025.

And we're going to answer our last minute question about home office deductions. So join us today for some practical tips and biblical insights to help you manage your finances wisely. Well, welcome back to the Ask Ralph show where we explore the intersection of faith and finances. I'm your financial evangelist and I'm your guide on this journey.

So thank you again for giving me some time and joining me today on our show. Now while we go through the show, you're welcome to post your comments and questions right in the chat. So let's get started with our first question. And that first question comes to us and it is from a person named Helen. And she's very blunt and very brief.

She said, what are 10 easy tax deductions and credits to cut my tax bill? Now Helen, like all of us, we feel this pinch when it comes to tax time, we're trying to figure out ways to reduce that tax burden. And just so you understand, tax evasion is criminal. That's the stuff they put you in jail for.

That's where the guys with the IRS gold badges and guns come out, but tax avoidance is your right and your obligation. So if you have a question while we're going through the show, feel free to put that in the question. And if you don't want to mention it today, you can go to justaskralph.com. And the last thing I'm going to say before we get rolling today, I just want to encourage you to reach out to anybody you know who has tax or accounting or faith questions and point them to the show.

We do this every week at Tuesday at 1 PM Eastern Standard Time. I was talking to a group of men yesterday and they said, Ralph, you know, what do you do during your live show? I said, I give myself away for free. You can ask questions. You can have a community with the group. So I'm going to encourage you to do just that.

Well, let's get to our Bible verse today. And the Bible verse talks all about stewardship and it comes to us from the book of Proverbs chapter 27 verses 23 and 24. And it's an advisement verse and it says, Be sure you know the condition of your flocks, give careful attention to your herds; for riches do not endure forever, and a crown is not secure for all generations."

And if you think about it, this verse really encourages us to be diligent in managing the resources God has entrusted to us. And by understanding and utilizing these tax deductions and credits, we can free up more resources to help support our families, contribute to our communities, and further God's kingdom, which is really what we're all endeavoring to do as we go through our lives.

So let me get right to our gratitude statement today. And then I've got a special guest going to join us and he'll be joining us every week. So I'll bring him in just a second, but today I'm grateful for the opportunity to share practical financial advice and biblical insights with all of you. I'm thankful for the knowledge and the resources that allow us to navigate these complex topics and taxes aren't simple.

I mean like taxes, insurance, energy credits, and I'm especially grateful for the chance to help others reduce their tax burden, plan for their future with confidence and make a positive impact on the environment. So thank you Lord for guiding us and providing the wisdom we need to be good stewards of the resources You've entrusted to us.

So let me, without further ado, I'm going to bring on his name is Craig. His name is Dr. Craig Van Slyke. And if I can make this work right, he should pop onto the screen here right now. There we go Craig, I guess welcome to the show.

Dr. Craig Van Slyke
00:04:29

Hey, Ralph, how you doing?

Ralph Estep Jr
00:04:31

It's great to have you, Craig. And I want you to take a minute to tell everybody about yourself.

I'm going to pop up a slide here I made for you where you can well, we can talk about what Craig is and what he does. But Craig, without further Ado, tell us about yourself.

Dr. Craig Van Slyke
00:04:44

Sure. I'm Craig Van Slyke. I am a professor of information systems at Louisiana Tech University. Although anything I say today has nothing to do with the university.

A little disclaimer there. I'm also the editor and co host of the AI Goes to College newsletter and podcast. So I'm an AI guy, I'm a tech guy, but I've also made my share of mistakes when it comes to personal finance. And so I thought maybe I could help out Ralph a little bit here, give him a little prodding for those of us who are not quite as astute as he is.

And so I'm looking forward to joining you, Ralph.

Ralph Estep Jr
00:05:20

Well, Craig, thank you. Well, let's jump right into our first question. I started that before you joined the call, but it came to us from Helen. And Helen was basically asking us what are 10 easy tax deduction credits to cut her tax bill. So I want to jump right into that and Craig, feel free to chime in as we go through this. The biggest one is the child tax credit. And this affects a lot of people because this provides a credit up to $2,000 per qualifying child under the age of 17. Now that seems like a little strange thing. I've had many clients that have said to me, well, why in the world did they pick, you know, 17 instead of 18?

And I don't know the answer to that. But unfortunately that's the way the IRS wrote the code. So it is a bit of a surprise for people, but if you've got two children, that means you've got a $4,000 potential tax reduction, and that's a dollar for dollar tax credit. So you know, and receiving that extra $4,000 in your pocket can be a big sign of relief for somebody, especially as you're struggling.

Well, let me talk about some of the other ones that are more common tax deductions. So we talked about that child tax credit. Another one is child dependent care credit. Now what this is, is if you both, let's say you're a two family workforce, both of you were out in the work, working in the world and you have to put your child in some sort of daycare where there's actually a child dependent care credit, and it covers up to 35 percent of up to $3,000. So basically what I'm talking about there, it works out to be about $600 per student or per child per year. And that's one that a lot of people overlook. Another one here on my list of the top ones is the American opportunity tax credit.

And Craig, I'm sure you're pretty familiar with this one being in higher education. This is one that allows you to get a $2,500 tax credit for qualified educational expenses. And that's generally the first two years of college. And then the second piece to that is the follow-up. And that's what we call the lifetime learning credit, which is an additional, basically 20 percent of the first $10,000 in educational expenses up to $2,000.

So Craig, do you see a lot of students at your university who take advantage of that?

Dr. Craig Van Slyke
00:07:36

I've never had a student mention this to me, but their parents may be attuned to it. But I was curious about something, Ralph, that American Opportunity Tax Credit and the Lifetime Learning Tax Credit. So you mentioned the first one generally applied to the first two years of college.

Ralph Estep Jr
00:07:53

Correct.

Dr. Craig Van Slyke
00:07:54

So does that cover trade schools or is it gotta be higher ed?

Ralph Estep Jr
00:08:01

It has to be a qualified educational establishment. So I've seen where some trade schools are covered by that. So it just depends on their accreditation as I understand it. But that's a really good question. I may have to do some follow up on that one.

Generally, they need to be an accredited you know, facility, accredited institution.

Dr. Craig Van Slyke
00:08:23

So a follow up question about the lifetime learning credit. Is that subject to the same rules and could I use that if I wanted to go back and study something new? Could I tap into that?

Ralph Estep Jr
00:08:36

Absolutely. And I'm glad you brought that up because that's not a credit that goes away. That is a lifetime credit. That's why they call it the lifetime learning credit. So if you think about it, it can be throughout your lifetime. Now, I want to warn you, there are some income limitations. You phase out of it once you get to a certain level of income. But Craig, you nailed it. That's exactly right. So you could have people in their first four years of college. It could be as long as it goes, as long as those are, you know, true educational expenses. And there's a cap of $2,000 per year, but yeah, let's say you just turned 80 and you think, Hey, it's time to go back to college.

Absolutely. As long as your income meets those requirements. And I don't have those today to talk about, but yeah, absolutely. That's one that doesn't go away. So good point.

Dr. Craig Van Slyke
00:09:18

I'm not quite that old. Getting closer, but not quite that old.

Ralph Estep Jr
00:09:20

No. And I certainly wasn't insinuating that. Now, another one, as we're talking about education is student loan interest, and you can deduct up to $2,500 in interest paid on student loans.

Again, that's a tax deduction not a credit. So that's going to reduce your taxable income, but it's not a dollar for dollar credit. And again, there are some income limitations for that. Now, if you're one of these people that is in this pursuit of adoption, there's actually a $16,810 credit for qualified adoption expenses.

There's also the earned income tax credit. Now this one is what we call a refundable credit. And Craig, I don't know if you know about those or not, but basically what a refundable credit means is so generally a tax credit will only allow you to zero out your tax. So if your total tax burden is $3,000, a credit will only allow you to take that to zero.

It's not going to basically let you go over and above that. Well, a refundable credit will actually let you get over and above. They'll actually send you money. So in that same example, let's say you had a $3,000 tax liability, but your credit was $4,000. If it's a refundable credit, not only does it wipe out to $3000 that you owe, they also will send you a thousand dollars.

So there's a big distinction between refundable and non refundable credit. And that's a tax planning piece of advice because one of the ones that's not refundable, and a lot of people are just catching them off guard. We'll talk about this a little bit later is that electric vehicle credit. It is not refundable.

So if you're going to do that, you want to meet with somebody like me or somebody you trust, a skilled tax advisor and plan out your withholding in the year you plan on doing that, because you don't want to have this credit that you just lose. Another big one a lot of, I see a lot of people doing is charitable donations.

Now this isn't as prevalent since Trump's tax cuts a few years ago, double the standard deduction, but you can still deduct the cash value of any charitable contributions, any property that you donate. Another thing on the schedule A or the itemized deduction schedule, medical expenses. And these are the expenses when I know in my practice, Craig, I hate to see people that have this because this means you've spent a great deal of money
on medical expenses, because there's that seven and a half percent of income limitation. So what that basically means is let's say you had a hundred thousand dollar income, which is a big income. Let's just say you had a hundred thousand dollars. Well, with that seven and a half percent limitation, you would not be able to deduct any expenses till you got over 7,500.

So when I meet with clients most of the time that is a situation where they've got really high medical expenses. So that's when I don't generally like to see and then the final, I'm sorry, go ahead Craig. You look like you had a question there.

Dr. Craig Van Slyke
00:12:01

So is that seven and a half percent of your gross income or your adjusted income.

Ralph Estep Jr
00:12:07

So that's seven and a half percent of your adjusted gross income.

Dr. Craig Van Slyke
00:12:11

Right. And so what does that mean?

Ralph Estep Jr
00:12:13

So adjusted gross income would mean, for example, it would be your W-2 wages, any interest in dividends you have, any capital gains you have, a portion of your social security depending upon your income and then it would be reduced by any IRA contributions you make or any kind of student or any of those what we call front page, what used to be front page on the 1040.

I think they're still front page. You get used to doing software you lose track of the forms, but yes. So that is what are called adjusted gross income, not to be confused with the IRS makes it even more complicated. And now there's a term out there, Modified Adjusted Gross Income. But yeah, you can go down a rabbit hole with that, let me just tell you.

Dr. Craig Van Slyke
00:12:52

That's what keeps guys like you employed, Ralph.

Ralph Estep Jr
00:12:55

Absolutely. That is the truth. And the final one on the list, as we talk about itemized deductions, is the one you talk about on the news all the time, you hear this SALT cap. And what that is a state and local taxes. And when the tax rates were changed and the deductions were doubled, there was a cap made up $10,000 in state and local income taxes. So those are like what I would call the heavy hitters. Now there's also your mortgage interest. You can deduct the interest paid on your mortgage. If you put money into an IRA or 401k, that can be a deduction on your tax return. Well a lot of people don't know about is gambling losses.

So if you're one of these people that likes to go to the casino, or you'd like to play the lottery and you have income, a lot of people don't know this either. If you hit it big, if you win that lottery, even if it's 600 bucks or more, you have to pay tax on that. Well, one of the things the IRS allows you to do is you can deduct any losses against that income.

So let's say for example, you go to the horse track and you know, you bet on your favorite horse of the day and it wins big, you know, it wins $10,000. Well, that's going to be income on your tax return. So then what you've got to do is you've got to go back and figure out how much did I lose to get to that point?

And that becomes a stumbling block for a lot of people because they don't keep track of that. They're not paying attention to those things.

Dr. Craig Van Slyke
00:14:14

You just made some small consolation to Kansas City fans, I think.

Ralph Estep Jr
00:14:18

Oh yeah, absolutely. There was probably a lot of that going on there. So more of the story tax pro tip.

If you are one of these people who likes to gamble, make sure you're keeping track of your winning and losses. One of the things I recommend to my clients is if you'd like a particular casino, you can become a member of what they call their players club. And they will actually give you at the end of the tax year an estimated losses statement because, here's a dirty little secret. And this is going to be sort of a negative comment, but I'm going to make it anyway

cause I tend to say things that are transparent, but I'm just going to say it. The casinos know how much you win or how much you've spent based on how much you win so they can tell you if you want, now you could be very lucky like my wife, I don't know about 15 years ago, one of her girlfriends took her out for dinner and they stopped for her birthday and they stopped at the casino, and she went up to the machine.

She put $20 in and won $1500. Now, that's the unusual circumstance. But most people, you're feeding that money in two or three times over. So if you are what we would call not a professional gambler, that's a whole another discussion, but if you're one of these people that enjoys the casino, make sure you get one of those players club and you're using that to keep track of your expenses. Now I want to throw, I'm sorry. Go ahead, Craig.

Dr. Craig Van Slyke
00:15:29

No, the casinos report income don't they? Over certain amount.

Ralph Estep Jr
00:15:31

Absolutely. So yeah. So let's use that same example. So like when my wife won that night, she had to go to the window to cash in because they wanted to get her social security number, her name, address, driver's license, because, and they'll actually say to you, Hey, do you want to have taxes withheld at this point?
So they're kind of, you know, they're doing the work of the IRS. They want to make sure you're going to report it. Now, if you win less than the threshold, they're not going to report that, but you know, and it also accumulates over the year. So that's something to be aware of. So Helen, I just want to bring a couple more things to mind because I've talked about some deductions.

Let's just take a couple minutes and talk about some tax planning strategies. In my practice, one of the things I tell clients all the time is tax preparation is great. I can do a good job with that. I can dot the I's, I can cross the T's, but the real value is tax planning. It's that creating that plan so that you pay the least amount of taxes.

So there's a couple of big things I would reinforce for you to do. Number one, If you have a retirement plan through work, or if you don't have one, you'll do an IRA, contribute as much as you can to those tax advantage retirement cash. And we're going to talk about that in a few minutes when we get into this whole discussion of 401k versus universal life.
But that is a really important thing to do because that money, those things that you put into that come right off the top. So if you've got that $50,000 salary and you're squirreling away $10,000, your taxable income automatically drops to $40,000. And what a lot of people don't think about, and Craig, you'll, you'll appreciate this one.
I always say to people, that's an immediate return on your investment, because let's say that you're making $50,000 a year and you're at a 22 percent tax bracket. Just for federal taxes alone, that's a 22 percent return on your investment. So every dollar that you put in there, it's not costing you a dollar.

It's only costing you about 78 cents. And you know, that's going to go over and over every year. Another thing I definitely recommend, and this is really important now that we see the standard deduction being so high is you might want to consider what I call bunching your stand, your itemized deductions.

What I mean by that is, let's say you're one of these folks. who's very charitable. What you might want to do is be charitable every other year so that you can drop that charitable contribution into year one and then skip year two, go to year three. It's kind of difficult to do that with medical, but there's a little tip you can do there.

One of my clients not too long ago had to have all their teeth fixed and this was a huge expense. And I said, well, what you want to do, and it doesn't sound like a fun experience, but do all that in one year because that way you can push those medical expenses up. You're going to clear that limitation.

And then I think they needed hearing aids. I said, okay, well let's try to get all that done this year so that we can bunch all those things together, which is what I'm talking about. And the same thing goes along with charitable giving. Now with charitable giving, I'm going to throw one more little piece of cake out there to everybody could eat here.
And that is if you're over 70 and a half or 72 or 73 now, and you have to take that required minimum distribution, one of the things you can do if you're charitably minded is you can do what's called a QC date. And what that means is you can basically assign your distribution directly to a charity. Now you might be saying, why would I want to do that?
Well, the reason that you want to do that is then that comes off of your taxable income. Now you may be able to just, you might be saying, Ralph, well, why don't you just do that you know, take the money first and then give it to the charity. Well, here's why. Because if you don't have enough to itemize, you're still in that standard deduction, you're going to lose that deduction.

But if you do it through a QCD, it's direct. So that, that's really the things, Helen, that I think we wanted to cover today with the taxes is if anybody has any comments in the chat, feel free. Craig, I don't know if you wanted to add to any of those things.

Dr. Craig Van Slyke
00:19:16

I just wanted to reemphasize the whole idea of bunching.

And even if, if all you do is follow the two recommendations to maximize your retirement accounts and to think about bunching your deductions, because I know a lot of us had to completely rethink how we consider taxes when the standard deduction went so far up. I mean, all of a sudden I didn't itemize anymore.

And so all those little charitable donations, which, you know, I give because I want to support the charity, but still, I mean, that's all gone. But you know, no deductions for that for me anymore.

Ralph Estep Jr
00:19:51

And you're right. That was a sea change and I see a lot in my daily practice I do about 600 tax returns a year. And I see that a lot and you know I say to people because as a Christian guy, like I believe there's a reason to be charitable and I think you alluded to that.

I don't say to him Hey, don't make this deduction because it's not going to be tax deductible, but I do say to them listen, here's what you need to understand. This deduction isn't helping you just like, I've had a lot of clients say to me, well, I want to have a mortgage because I want to deduct the interest. There's a whole another financial discussion about that. But again, if you don't have enough to itemize.

So Craig, you're absolutely right. And that's really changed the tax planning strategy for a lot of people.

Dr. Craig Van Slyke
00:20:27

Well, and I think a lot of people misunderstand that standard deduction. You're still better off with a higher standard deduction.

If you no longer have to itemize than you were before, when you were itemizing, it's still a higher number, I think. Right.

Ralph Estep Jr
00:20:39

Oh, absolutely. Yeah. I just had a client in a couple of hours ago, a young couple, married couple, two children, they've got the traditional mortgage interest. They pay state and local income taxes, but for the two of them, their standard deductions like almost $30,000. So you're going to take, you know, obviously you're going to take whichever one is better.
And so absolutely it's still beneficial. Now the thing you need to understand is that all goes away this year. So 2025, unless the Trump administration is able to get something through Congress, a lot of the things that we've been living under on the personal tax side are going to sunset. So it's going to be an interesting year to see just what happens there.

Well, let's move into our second question. This is our listener question. From Mike in California. And it's interesting, Mike asked this question then one of my clients came in the other day and it's like two people in one week. I said I got to put this on the show and that Mike asked is what is universal life insurance

and why might it be a better option than a 401k? See, Mike is looking for the best way to save for retirement. And he wants to understand the advantages of universal life insurance. Now I got to be honest with you, Craig, when I read this note and then the client came in, I was like, you know what?

I really don't know too much about it. And I was sort of skeptical about it because I said, you know, I've always been, my whole life I've been sort of indoctrinated into this belief that the 401k is the best plan in town or if you work in a non profit, you may have a 403b or if you work for yourself, you might have a self employed pension plan, but it was interesting when I started to sort of dig into this. And Craig, I don't know if you've ever dealt with one of these, but it really is a pretty interesting investment vehicle.

So let me, take a few minutes to explain how this works. So universal life insurance is sort of a type of personal life insurance. It's the typical, you know, if you die, someone's going to get something. It's lifelong coverage and it also accumulates cash value. What's the difference between term life and this type of life insurance? Term life only has a value while you're paying the way you're paying the premium for it.

It's like, for example, like right now I have a 20 year term life insurance policy. So I'm going to pay that premium every year. Once we get to 20 years, guess what? Ralph doesn't have any more insurance. Now I could go and get another term policy, but what these permanent life insurance or these universal whole life insurance, they provide coverage for, you know, till last your entire lifetime.

Now, of course, you've still got to pay the premiums. And it also has a cash value that grows over time, which can provide a source of funds you can access while you're still living. And that's where we're going with this whole discussion about this universal life plan. And so, what goes on here over the years that cash value grows significantly and you can borrow against it to supplement your retirement income without increasing your tax liability because you're not actually taking a distribution from a 401k or something like that.

So I want to talk about what the key benefits of these things are compared to the 401k, because everybody knows what a 401k is for the most part. If you work in a traditional job, now you've got this 401k plan. You put a certain amount. We talked about this a little while ago, but here's the thing with these universal life policies and you have to think about it in terms of this.

It's just another investment vehicle, but a lot of people, and a lot of people are promoting this now instead of making that retirement contribution to the traditional 401k. So the way that this works is the income in this is tax free. And the way it becomes tax free is you're never actually taking the income out of it,

you're borrowing against yourself. So when you borrow against yourself, there's no income. So a lot of people like this because unlike that traditional 401k or that IRA, see, the dirty little secret about the 401k is that yes, you get that tax benefit now. So when you put that money into that retirement account, that's fantastic.

It reduced your tax liability. But then what happens is you get to the magic age of retirement and that's different for everybody. Then all of a sudden you have to start taking that money out. And then that becomes a tax issue because every dollar you take out is taxable income. So that triggers a lot of issues.

It triggers taxation of social security depending upon your income. It can trigger what's called IRMAA, which is where the Medicare premiums that you pay go up based on your income. But that's one of the big things a lot of people talk about with these universal life insurance.

Dr. Craig Van Slyke
00:25:05

So, quick question, Ralph. You pay full taxes on the money that's used to buy the life insurance policy, but you get a deduction for contributions to the 401k, 403b, right?
So you're really trading some tax timing. Correct?

Ralph Estep Jr
00:25:21

Yeah. And that's what it comes down to. It's kind of that old adage. Like I was taught when I was at University of Delaware, almost 30 years ago now.

But yeah, that time value of money basically, is what you're talking about. So if you do the 401k, you get that benefit right then it's like, Hey, here's your benefit. Whereas contributing to these universal whole lives, you're paying that with after tax dollars. And that's the whole reason that, it doesn't become income to you because it's not been here's the thing.

I say this to clients all the time. The IRS is going to get their pound of flesh. They're either going to get it now, or they're going to get it later. So just like a Roth IRA you put in with after tax money, these universal policies are going to be done with after tax money as well. Now, one of the other big benefits to this, and this is why a lot of people love these, there is no annual contribution limit.

So if you're a super high income individual, these can be used to expand the amount that you contribute. So for example, for a 401k, right now, I want to say, and again, I'm going to tell you, I always look this up when clients come in. It's generally, if you're over 50, you can put about $30,000 into that for the year.

That's the cap that you can put in. But with these universal life policies, there's no cap you can dump. So I see a lot of real high net worth individuals using this as a vehicle to shelter that money. Again, they've already paid tax on it. Like you alluded to Craig, but then it shelters that as that money grows and that cash value expands.

Now, the other benefit to this is that at the time that you pass away, there's a death benefit for your beneficiaries. Again, that's not taxable to them, which if you think about it, there's another benefit there as compared to the 401k, because a lot of people don't know this either. Let's say that your mother, your father, your grandmother, your grandfather, they leave you their 401k as an inheritance, right?

They list you as the beneficiary. What a lot of people don't understand is when you take that money out, guess what? Remember what I said about uncle Sam? They want their pound of flesh. They're going to get it from you at that point. Whereas these universal life, there is no tax because the benefit of receiving life insurance is not taxable.

So a lot of people view that as, Hey, this is a great plan as well. There's alsono required minimum of distribution. I mean, basically you can leave this money in these accounts and just let it continue to grow. Whereas with the 401k or the IRA or SEP, any of those things that are pre tax at some point, the IRS is going to be knocking at the door and saying, Craig, Hey, it's time to take some of that money out.

We don't think you're going to live to be 200. So it's time to start making now, right now that's at like 73 and they've moved that number around a little bit, but that's a big deal for people. And there's also, I won't get into a whole legal discussion, but there are some state benefits because there might be creditor protection for these universal life policies.
There's some, and again, I'm not an investment advisor. They claim that there's higher returns on this. But here's the thing I'm going to say about this because I'm still not sold on it. It really comes down to that basic decision of okay, do I think I'm better off to get the tax benefit now, or am I better off to get the tax benefit later?

And I think honest people could disagree about that. I think that's a whole discussion.

Dr. Craig Van Slyke
00:28:41

You mind if I jump in for a second?

Ralph Estep Jr
00:28:43

Absolutely. That's why you're here.

Dr. Craig Van Slyke
00:28:45

So two things I wonder about one is this is a really complicated decision. So if you're considering this, your best bet is to consult with somebody who really knows how to break this down.

Cause there are a lot, I'm hearing a lot of moving parts. Where it's not, this is good or bad. It's this good or bad in your particular situation? The other thing is there's the skeptical Craig that thinks the people that are pushing these are selling these. And that's always bothered me about universal life.

Back when I was learning a lot of this, there was don't do universal life, get a term policy and invest the difference because the premiums are a lot higher I think typically on a universal life policy. So the bottom line is I think, and tell me if I'm wrong. If you're considering this, and it may be worth considering, go to somebody who isn't selling them and get them to help you think through, you know, the couple hundred dollars or whatever it is that you pay somebody to help you think through this is gonna be, you know really high ROI for you I think. Am I wrong about that?

Ralph Estep Jr
00:29:52

No, Craig, you're absolutely right. And it's what I say all the time to clients is you gotta understand, a lot of people don't know this. Just like buying an annuity. They are front ended benefit to the seller of those. Exact same thing here.

As I understand it, most whole life policies, whoever the seller that earns a hundred percent of the first year premium, that's huge. There is a huge incentive for them to sell that policy. Now, that doesn't mean it's a bad policy. I want to be very clear because you can sell a product that has value, but man, I think I agree with you, Craig.
And that's the thing whereas the 401k, there's not really any salesmanship on that part. Sure, the 401k companies charge you an investment. And a lot of people don't know this. It comes out of the amount of your earnings, but there are management fees to go into that. But Craig, I think you're absolutely right there.

There is a definitely a push for people to sell these products because they earn a huge commission. And that commission is not only a front end commission. Is what they call a trailing commission. So as long as you continue to have that investment, they're going to earn that income in perpetuity. And I'm not picking on insurance salespeople, but if I'm an insurance salesman, Hey, I love these things because that is the gift that keeps giving.
I get a big gift up front and then I get a gift every year in perpetuity. And that's why a lot of people in the insurance area will retire. They retire on these trailing commissions.
The big takeaway from that, Craig, I think you nailed it. And I'm going to mention this right now. It is so important to talk with somebody who understands it and not just understands that, you know, the thing is, and I'll take a little Ralph rant here for a second. Be careful who you have as your financial advisor as well, because a lot of financial advisors work for a company that sell products.

You know and there's a big difference. A lot of people don't know this. There are financial advisors that draft a financial plan and they look at all the products in the market and they say, Craig, you'd be better off to have this, this, and this. Then there are other financial advisors. I'm going to pick on banks for a second.

Cause banks are like bottom feeders on this. They sell a product. They don't sell a solution. They sell a product and that product, they earn a commission. Again, it doesn't mean it's a bad product. It just, you need to understand the hat they're wearing is they want to sell you a product. Whereas there are financial advisors out there that want to sell you a solution.

Now, both of them get paid. A financial advisor might earn 1 percent of whatever your assets are, whatever the return is. But I just feel like when you're looking for that financial person, andI'm going to drop a dime for myself here. One of the things you might want to consider is talking to somebody like me first. Because i'm not going to sell investments. I don't sell investments and what I can say and I think Craig and I, you and I have actually had these conversations .

Here's what I would recommend. Now go talk to a financial advisor that sells products, but you know here talk to an accountant, talk to a financial professional that doesn't have a vested interest in selling you something. I think that's very crucial. So Craig, I think you nailed it on that.

Dr. Craig Van Slyke
00:32:50

You know, That's huge. It makes me chuckle every time I get an email from Wells Fargo about doing a refinance. You know my less than two percent mortgage at their current whatever it is seven percent rates. Yeah, who's that good for? It's not me.

Ralph Estep Jr
00:33:03

Yeah. And it's funny, you know, I did a show a couple of weeks ago about credit.
I'm a big credit union person. I used to be an executive vice president of credit union. And because I really felt like we didn't sell a product, you know, we sold, you know, you are a member of the credit union. And I think you have to think about, you have to have that same mindset when you're going into investments.

But I think we kind of nailed that one down pretty hard. So again, this is something to consider if you have the bandwidth and you want to understand this, like I said, I don't think universal life is a bad product. You just have to look at, does it fit into what you need for your particular situation?

Well, let's jump into our next question. And this one comes to us from Emily and Emily ask a very blunt question. And she says, what energy credits are available for 2024 tax filing and for 2025? Emily's looking for ways to save money while reducing her environmental impact. Now I'm going to be honest with you.

I've had a few clients already in taxes a little bit early in tax season, but this is so confusing when you look at the IRS website and you've got people out there selling these solar panels and energy efficient appliances. It is extremely complicated. Now, overall, I think the government tax credits are done to encourage energy efficiency.

That's what they're trying to do. They're trying to get people to use renewable energy sources, but I gotta be honest with you, when you get into the detail, it's sometimes hard to follow. Now a lot of people say to me. Hey Ralph I'm not into that green stuff. That's not how I roll and I'm one of those guys like I don't have an electric car, I don't really have a strong desire to have one of those cars. But then of course, you know being a Christian show, I did a little digging and I said wait a second. There's a Bible admonition here and it comes first from Genesis chapter 1, verse 28.

And it says, "God blessed them and said to them, be fruitful and increase in number; fill the earth and subdue it. Rule over the fish in the sea and the birds in the sky and over every living creature that moves on the ground." But he also told us we needed to be responsible. So that's where if you want to get into like this whole, this dichotomy of okay.

Yes energy efficient. But there's also we have an admonition as a Christian. And that's who I'm appealing to on the show. To build that and maintain that environment for future generations. So there are a bunch of these energy credits out there. I'm just going to highlight a few of them today.

If you do insulation or air sealing in your home, there's a 30 percent of cost up to, and again, I'm going to encourage you to go check out our blog post for this. I write a blog post for every time I do a show you can get that at askralphpodcast.com/blog. I've got a nice chart in there because this will confuse you if you think you know the answers to this. Listen, that's what I do for a living and I can't follow some of this. But generally the first one, insulation and air sealing, 30 percent of cost up to $1,200 a year.

So basically what I'm saying there is if you do insulation or any kind of air sealing to your home, your cap is about $1,200 a year. You can do exterior doors. Basically you get $250 per door, but you're only going to be able to put a front door and a back door on because they limit it to $500. Looks like you had a comment, Craig.

Dr. Craig Van Slyke
00:36:06

Yeah, just a quick clarifying question. So that $1,200 annual limit, is that for the credit or for the cost of the insulation in that case for which you can get a credit?

Ralph Estep Jr
00:36:17

It's 30 percent of the cost so that the maximum credit is $1,200 per year. So in other words, you have to spend at least X number of dollars to max out at that twelve hundred dollars and I can't do the math here on my, but see there's a tax planning point here Craig, which a lot of people overlook, is a $1,200 per year limit.

So let's say that you're going to do a lot of insulation and air sealing. Again, plan this because you might do some in year one, you might do some in year two, you might do some in year three, as long as these credits stay around. If you've got that $1,200 limit, you might want to space those things out, but yeah, it's 30 percent of the cost up to a $1,200 annual limit.

I mentioned doors, $500 for doors. You can do windows and skylights. And again, this is where they get in this crazy stuff. So doors is $250 per door for a total of $500. But then when they move the windows and skylights, it's 30 percent of the cost up to a total of $600. Again, planning would say, okay, maybe I want to do some windows this year.

Now, of course, I don't think you want to have your home open for over the season with no windows in it because you're trying to get the tax credit. I know that sounds silly, but I guess you could do that. Central air conditioners. Again, I think this is funny. They're going to give you up to 30 percent of the cost, but a cap of $600.

I don't know about you, Craig, but if you've ever replaced your central air conditioner, a $600 credit is not going to be very high. Which is fine, but it's not going to really help you. Heat pumps. Now, this is the interesting thing. So central air cap at $600, but we moved to heat pumps, cap at $2000. Again, Heat pump, water heaters. Those go up to $2,000. Biomass stoves and boilers, $2,000. Now this is when a lot of people don't know about, but if you have an energy audit done of your house, I don't know if you've ever done one of these Craig, I actually haven't done one of these, but they'll actually give you a credit of $150.

I honestly don't know what you pay for those. So I don't know what an audit costs, but they'll actually give you a credit of $150 towards the purchase of that home energy audit.

Dr. Craig Van Slyke
00:38:21

And I think a lot of electric utilities will do these audits.

Ralph Estep Jr
00:38:25

Excellent.

Dr. Craig Van Slyke
00:38:26

Yeah, I think that's the case.

Ralph Estep Jr
00:38:28

So that's another thing to consider. Now that was what I was talking about. These are the energy credits then they differentiate it all together and now they have another, a thing what they call a residential clean energy credit. So those were just the energy credits, now we get into the clean. This is what we're gonna talk about solar. They'll give you 30 percent of the cost of solar.

Now the solar doesn't have a cap. It's just 30%. If you do solar water heating property, like you use some kind of solar thing to heat your water, 30 percent there. If you want to do a wind turbine out behind your house, I don't know how many people are going to do this one, but there's a 30 percent credit there.

Geothermal is something I have several clients who are really into that. There's a 30 percent credit for that. If you do any battery storage technologies, is a 30%. And let's take a side of this because it's interesting. I'll do a little bit of a caveat here. So I guess it was about a year or so ago.

I've got this 30 acre farm. My cows are here. My family, you know, the house is here. The office is here. So I had a company come out and give me a proposal to do a solar production of energy system. And I couldn't believe the prices. The prices were enormous.
You know, of course the guy said to me. He said, Ralph, he says you're one of the biggest users of electricity I've ever seen. I didn't know whether to wear that as a badge or wear that as like, oh, he was shaming me. I'm not sure which it was.

Dr. Craig Van Slyke
00:39:41

But they can be a lot of money. I did online for ours and I think it was going to be 60 or $70,000 for just the residents.

Ralph Estep Jr
00:39:51

Absolutely, and the reason I brought that up is then the next step was okay, that's fine. I think I needed to generate and Craig don't hold me to this but I think that the plan to give me was what they call a solar array. And it would be like out in the pasture. So the cows were going to walk around these nice little solar panels will be there. I want to say it was like two hundred thousand dollars.

He says but that will produce most of what you need, he says, but the problem is we don't have any way to store it.

And I said, what do you mean you don't have ways to store it. He goes, we had to do batteries. How much are batteries? He goes, they're about $30,000 a piece. I said, wow, not like the old Duracell batteries or you know, that you get at the dollar store. But so anyway, you can take 30 percent of batteries, fuel cell property, 30 percent of cost.
And it gets into a whole discussion of kilowatts and all that sort of thing. So that's what the current law is. Now, Craig, one of the things in preparing for the show, you asked me about, well, what's changing for 2025. So let me highlight a couple things. And this is what I do know. There's going to be new, what they call energy star.

You probably see this when you buy appliances, new energy star efficiency guidelines. And one of the things that's interesting is they're picking and choosing winners. Now they're only going to allow credits if a producer is on their qualified manufacturer list, which I think is interesting. And I don't know how that's going to change with Trump coming back into the White House.

I got a feeling of this is an area where there's going to be some changes. So you might see some things there, but you're going to have to pre register this with the IRS. They want to make sure that you know what you're getting into. So not a lot of changes I see Craig for 2025. One of the other things you brought up, and this is a valid point is you said, Hey Ralph, what about States?

And that's where, you know, I don't do a lot of stuff with "state credits" for energy, but every state has different ones. I know here in Delaware, my home state, if you do any kind of solar or geothermal, there are state credits. There are state grants that you can get. And you just have to be aware of this from a tax perspective.

If you get one of those, you've got to reduce the acquisition cost of what you paid for by any grants that you get. So let's say you go to put on solar panels on your roof and you spend 50,000, but the state of Delaware is throwing in 10 of that. Well, you really didn't spend 50, you spent 40. So that's where you're going to figure out your 30%, not based on the 50, but on the 40.

A lot of people don't know that. So my tip is to keep thorough records of all those expenses, keep your receipts, keep your invoices. And again, I'm not trying to promote my own services, but speak to a tax advisor to make sure you're eligible. You need to talk about whether that's a credit that's refundable or non refundable, because you don't want to get yourself jammed up and you spend all this money and you find out, I don't qualify for the credit.

Like I'll give you a crazy example of this. I had a client come in, I think it was last year, the year before, and they had gone out and bought an EV because they heard about all these EVs are going to give you this big tax credit, a $7,000 tax credit. Well, they didn't realize it in the salesperson scrambled them when I found out about this, but they actually bought a used EV. And because they bought a used EV there was this limit of how much they could spend.

Listen to this one Craig. It will rock your world. So this client comes in, it's an older couple and he bought this EV. Now he would have bought the EV either way. He was a green guy. He thought this was the right thing to do and I support that. But there was a cap of twenty five thousand dollars for the total sales price.
Guess what the cost of the car was. $25,800.

Dr. Craig Van Slyke
00:43:13

Funny how that works out.

Ralph Estep Jr
00:43:14

Yeah. And I said, the salesperson should have said to you, Mr. Jones, I'm not using real names on the show, but Mr. Jones, you know, you could have done this but, so that's one of the things you gotta be aware of because again, we talked about this a little while ago with the investments.

The people who are selling these solar panels, the people who are selling these Geothermals, again, they have a valid product. They have a valuable product. I have a hard time making that ROI makes sense. Like when I looked at the solar array for the farm here, it took almost 26 years to get that return on that investment.

And I honestly don't know how long those solar panels, and I'm just picking on solar panels. I don't know how long they're going to last. You know, and the other thing is a lot of people don't think about this. Another little pro tip. Make sure you insure those things. Because they're not covered by your standard homeowner's insurance. If you're going to spend 50, 60 and I've got clients that do these and they love them. I got one guy that did it.

He heats his pool with it. He keeps his pool open almost 10 months a year because he has some kind of system where the water comes up from the pool, goes to the solar panels and I think it's great because I know what I pay to keep my pool warm and it's not cheap. But anyway, so I think we kind of hit on the solar or the energy. Did you have any questions on that one Craig or anything you wanted to bring up?

Dr. Craig Van Slyke
00:44:25

Just a couple of quick things. One is I just want to reiterate not that the sales people who are selling these things are untrustworthy. Some of them are. Some of them are not. But you need to really be careful that you understand fully that it's your responsibility to verify any of the tax credits because they're not tax professionals.

They don't know your situation. They're going to spout their company's party line, which is based on, even if it's honest, it's based on generalities. So, like your elderly client, it may or may not be based on your particular situation. The other thing is make sure you do any of the math carefully. So, when I looked at doing one of those solar panel walls, with the battery walls for my house, one of the things that tipped it over is the maintenance cost.

So there's a lifetime on those solar panels. There's a lifetime on the batteries. You know things go wrong, so you've got to figure that in as well. So I'm not saying they're bad things to do and I may still you know, if it gets close enough with storms and you know, not we live in the woods, not having to rely on the grid as much.

There's a lot to be said for solar panels, but just be careful about the math.

Ralph Estep Jr
00:45:45

Absolutely. And I'm not underselling. It's funny when the guy came in to sell me the solar panel system. I said, you do understand I do math for a living, right? You understand I'm going to check all this stuff. And it was funny because he got one of those and I'm like, okay, just send me the proposal.

We'll look at it. And, but anyway, you're absolutely right. There are good people selling these, but there are also scoundrels out there selling these. There are people that will be, you know, like the snakes in the grass, for lack of a better, my grandfather used to use that term for them, snakes in the grass.

Yeah. You just had to be aware. And like you said, you nailed it when you said this. You're responsible for your own tax return, no matter what somebody says, no matter what somebody tells you, when you file that tax return, you're attesting to whether this is a valid deduction or not. So Craig, absolutely good point. Well, I want to get to our last question that was sent in before we close out for today. And this comes from our buddy, Mark. Mark has a podcast called Practical Prepping and Mark sent me this question. He said, we run a small business from our home with a room dedicated to studio and office space.
My wife also maintains a desk area in another room for her work in direct sales. How do we claim these tax deductions for these areas? We both must have internet access for business, but our television is also connected to the internet. How do we calculate the deductions for internet utilities?

Thanks, Mark. And Mark, thank you. That is a great question. It's a question I get a lot of times in my practice here because when it comes to claim a tax deductions for businesses to your home, it's very complicated and you got to follow some basic things. So let's talk about those because you got to understand the IRS guidelines carefully to make sure you don't end up with that knock at the door from the IRS with the guys with the guns and gold badges.

That's the people that are looking out for you if they think you're doing something illegal or inappropriate. So here's the big takeaway. Both you and your wife may be eligible to claim a home office deduction, but here's the thing. You need to make sure that it meets the IRS requirements. And here's the basic main rule.

The space has to be used exclusively and regularly for business purposes. So let's talk about your exact situation. First thing is your studio and office space. So if you've got a dedicated room that's used solely for your studio and office, you can calculate the deduction based on the percentage of your homes total square footage that the office occupies.

So for example, let's say your office is 200 square feet and your home is 2000 square feet. Then your office represents 10 percent of your home, meaning that you can deduct 10 percent of certain expenses. That would be your utilities, your property taxes, repairs, and maintenance. I'm not going to get into a litany of those discussions, but 10 percent of those things based on, again, we're talking about exclusive use because what you said, Mark, is this is used just for that.

We'll let the fact that your cat lives in there slide. But anyway, generally now your wife's desk area is a whole another story because it's in a separate area, but is it exclusively used for business? Now, again, if it is, she can calculate a percentage of that space relative to your home's value.

And again, deduct that, but it's got to be clearly defined as being exclusive for your business. I'll give you a great example of this, Mark. I had a client a few years ago and they kind of did their own thing. They weren't clients of mine at the time. They did their own tax return and they basically claimed that 50 percent of their house was business use.
They came to me because of course they got audited by the IRS. They bring this letter and like, Ralph, what are we going to do? And I said, well, you got a problem. I said, tell me about the space. And they said, Ralph, we did one better than that. We fought the IRS and they actually did a home visit. And when they came out, I showed them the room that was used.

And they said to me, it's not exclusively used for business. I said, what do you mean? This is the only place I do business. Well, there was a bed in that room. Well, guess what? It's not exclusively used for business. So that's the thing. The IRS is, they're cold hearted on this one. It's got to be exclusively used for business.

Dr. Craig Van Slyke
00:49:41

Sorry to interrupt, but there used to be folklore that that was one of the things that might trigger an audit. Is that still true? Is that true?

Ralph Estep Jr
00:49:49

I absolutely do. Yeah. Because it's low hanging fruit. Because how many people have a house big enough to where it's going to be excluded? Because that term exclusive is very precise.
It's exclusive. So you have to be really careful of that. Now, I don't want to lose say we got only a few more minutes before we got to go, but Mark, the other thing you talked about was internet. So your internet, because you're using it both for personal and business purposes, you got to decide how much of a percentage is used for business and then take that percentage as your deduction for the business.

Now, the fact that your TV is connected to that, In my personal view, I think the TV, especially if the business involves the Practical Prepping, you've got to be watching storms. You got to be paying attention to what's going on in the news. I would say, Hey, one of the things I say to clients all the time, Craig is if you can convince your grandmother that it's a legitimate expense, then I think you're fine.

That's one I think is fine. So Mark, with the internet and TV, I wouldn't worry so much about them being in one bill. A lot of people have those triple plays now where they're TV, internet and telephones all in one, but just come up with that percentage, you know, and you can make the argument. Look, if it wasn't for my show or it wasn't for my wife's direct selling, I wouldn't have internet.

I think the IRS might challenge you on that one, but you could make that position. Now, the other one you talked about was utilities. That's the electricity, the heating and all that sort of thing. Again, use that same percentage of your home square footage that you dedicated for the home office. So if your home office takes up 10%, then deduct 10 percent of those monthly utility bills as a business expense.

But again, make sure you have clear delineation of what that is. I recommend clients to take pictures of that, you know, make sure that when you look at this room, there's a desk, there's a chair, whatever it looks like. I've got some clients that may sell products. They have to have a storage space. So maybe we take a percentage of their garage and that area is clearly delineated as a separate space, but it's always a good idea.

Again, everything we've talked about today, I'm going to go back to consult with a tax professional or an accountant to ensure you're taking the deductions you're entitled to do because then they're going to help you document that for the future. Well, Craig, I just want to thank you. I know you got to run here in a second because you've got some other commitments, but Craig's going to be joining us every week.

He's sort of the show get to the bigger picture. Cause I get tunnel vision sometimes, cause this is what I do for a living. And so Craig, I truly do appreciate you joining us today. It's been great to have you. Craig and I have been friends now for some time.
One of the greatest things I just found out, I'm a big University of Delaware football fan, and we just went to a new, we call it a new conference and where Craig teaches. We're actually going to be playing them in football. So I'm trying to twist Craig's arm to come out and visit Delaware so that we can go check out the Louisiana Tech Delaware game.
So again, Craig, thanks for joining us today.

Dr. Craig Van Slyke
00:52:35

As long as the Delaware fans won't jump me, that's all.

Ralph Estep Jr
00:52:37

Nah, we're not like that. We're not like the Eagles fans. I'll probably get in trouble for saying that one.

Dr. Craig Van Slyke
00:52:42

Thanks for having me on, Ralph. I appreciate it.

Ralph Estep Jr
00:52:44

Very good Craig. You take care my friend. Well, let's get to our reflection question for today or our reflection questions for today.

I want to talk about those here next. So let's go back to me here. So our reflection questions today. I always like to end the show with, you know, reflecting about what we talked about today. So first thing. Number one thing. What specific tax deductions or credits from today's episode can you apply to your financial situation to reduce your tax liability?

If you have to go back and review what we talked about today, check out the blog post again, that's at askralphpodcast.com/blog, put these things we talked about today to use for you. So that's our first one. Second thing, how does understanding the difference between universal life insurance and 401k influence your retirement planning strategy?
Do that deep dive, like Craig talked about, talk to some people that understand these things and it will be really helpful for you to do that. Next thing I'm going to recommend that you do is number three, what energy efficient upgrades or renewable energy items can you use to help give you those credits for 2024 and 2025?

Now, before I close out today, I just want to remind you about our blog. You can get that at askralphpodcast.com/blog. I'm also going to remind you about supporting the show. One of the things we launched a couple of weeks ago is this thing where you can buy me a cup of coffee. I'm going to be honest with you.

I don't even like coffee, but this is a virtual cup of coffee and nobody's going to show up here in my office with a tray of coffee, but it's a way to support the show. And now why I want you to support this show is for this. The more people that we can get to support the show, the more money I can spend to go reach other listeners.

I can put more content out there. And I go pay for advertising and that sort of thing. So if you feel like you want to support the show, I encourage you to do it. You can do a one time support. You can do a recurring support, but you do that at askralphpodcast.com/support. You'll see a little button it says, buy me a cup of coffee and I will really appreciate you do that. So remember as I close out today, my passion is to help you achieve financial success. I want to see you live out your dreams and I want to see you grow in your faith and together, I know working together, we can master your finances from a Christian perspective. So as I always say, when I close the show, stay financially savvy and may God bless you abundantly.

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