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3 Tax Numbers to Know
My Latest
Winning the Game
3 Tax Numbers to Know
A Money Question
My Latest
I will give you a preview of this week’s newsletter, it is all about knowing your numbers.
My latest is a YouTube video that does the same but covers broader concepts than we will cover here.
If you want to get smarter with your money in 2025. I know it will help you.
You can check it out below ⬇️⬇️⬇️
Winning the Game
The parallels between baseball and financial planning (managing your money) are everywhere.
My best games were always the ones where I felt the most confident.
My worst games were always the ones where I felt like a fish out of water.
The difference?
It all came down to planning and preparation.
You see understanding (and feeling good) about your money are much the same.
When you plan and prepare not only can you execute but you feel confident doing so.
After all, that is the goal with money.
Today, I am going to talk about three tax numbers you need to know that will help you plan, prepare, and increase confidence.
Let’s dive in…
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3 Tax Numbers to Know
There are endless numbers you could know when it comes to taxes, but I want to give you three to focus on.
1. Safe Harbor Number
If “safe harbor” sounds Greek, that’s ok I am going to explain exactly what it means and how you can calculate it.
I started with this number because I am sending out this episode a few days before 4th quarter tax estimates are due.
Safe harbor is the amount of money you need to pay in taxes to avoid penalties and interest.
To calculate yours you can do it one of two ways:
110% of your previous year’s tax bill
90% of your current year taxes
Example: If you owed $100,000 in taxes in 2023 and expect to owe $200,000 in taxes in 2024 ~ Your safe harbor number is $110,000 (110% of your previous year’s tax bill).
***This allows you to hold onto the additional $90,000 until the tax filing deadline.
Here is why this matters for athletes, entrepreneurs and key employees:
Salaries, bonuses, and distributions (specific to entrepreneurs) each face different withholding amounts.
Said another way depending on how your paycheck is coming to you will depend on how much gets held back for taxes.
To calculate the rest of it you need to have a team helping you understand what was withheld and what you will owe come tax filing season (something we help our clients with at Moment).
I always want to know both my safe harbor number and total tax number.
I then keep the difference in a cash account (earning interest) until tax season.
Example: If we take our example above and we keep our $90,000 for an extra six months earning 5% interest we earn an extra $2,250. Or you can just give the IRS that extra money…your choice.
The Result ~ You know your tax number, you keep your money longer, and you face no surprises come tax season.
2. Quarterly Estimates
Remember how in the above example, the amount of money withheld from earnings (salary, bonus, and distributions) can all be different?
Well, compound that with the fact that your business or the business you work for is using software to provide a “best estimate” for your tax withholding.
So what hits your bank account will surely not be the exact number you owe in taxes.
This is where quarterly estimates come into play.
A quarterly estimate is simply a way for you to pay the additional money you will owe in taxes.
Outside of payroll withholding (salary), you owe taxes each quarter when you earn income.
Example: For an investment gain resulting in a capital gain of $25,000, you should plan to pay a quarterly estimate. If you take a company distribution of $25,000, you should plan to pay a quarterly estimate.
To drive this home, let me bring your attention back to why your safe harbor number is so important.
If you know that number, you can determine what you “have to” pay in quarterly estimates and what you can keep until the filing deadline.
Example: If you can keep your money longer, it can earn interest in a high-yield savings account or money market account for months until you have to pay this to the IRS (see example above).
***The bigger the numbers the more this matters for optimizing your money.
3. Ordinary Income Tax vs. Capital Gains Tax
Individuals in America face two tax systems:
Ordinary Income Tax Rates
Capital Gains Tax Rates
Ordinary income taxes are what everyone thinks of when it comes to taxes.
This is the tax rate for earned income in America.
It ranges from 10% up to 37% plus state taxes.
Capital gains taxes are taxes on “investments” not wages.
This is the tax rate we want money shifted to after we earn it.
It ranges from 0% - 20% plus state taxes.
***High earners are also subject to 3.8% in Net Investment Income tax.
The wealthiest people in the United States have focused on ensuring their future income will be taxed at capital gains rates rather than ordinary income.
Example: $1,000,000 of “income” can be taxed in two different ways depending on how it is earned and classified.
$1,000,000 of “earned income” is subject to ordinary income taxes.
Estimated $370,000 in federal tax liability
$1,000,000 of “long-term investment income” is taxed at capital gain rates.
Estimated $238,000 in federal tax liability
A $132,000 tax difference simply by one being taxed at capital gains rates instead of ordinary income rates.
To build wealth you have to earn income (ordinary income taxes).
To grow wealth, you shift earned income to investment income (capital gains taxes).
So consider what percentage of your total income is coming from earned income versus investment income.
The more you can shift into the investment income bucket the more favorable your tax treatment will be.
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Building wealth is about understanding the game you are playing.
The rules of the tax game are set by someone else.
The tax strategies you use are up to you.
Yet before you implement any tax strategy you must understand what numbers matter and how they apply to you.
Nearly every client we bring on at Moment is overpaying in taxes.
It is our goal to ensure our clients pay the lowest amount in lifetime taxes.
Until next time my friends…
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A Money Question
What tax strategy did you implement in 2024 to reduce your lifetime tax bill? Respond to this email and let me know!
Taxes and reducing your taxes is all about planning. The IRS sets the rules of the game but you can decide how you to play that game.
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3 Ways I Can Help You
💰 Schedule an introductory call with Moment. We help athletes, entrepreneurs, and key employees build and protect wealth.
📹 Check out my YouTube channel. A safe place to get smarter with your money.
📷 Interact with me on Instagram. Where I provide bite-sized daily content to level up your money game.
Moment Private Wealth, LLC is a Registered Investment Advisor, located in the State of Missouri. Moment Private Wealth provides investment advisory and related services for clients nationally. Moment Private Wealth will maintain all applicable registrations and licenses as required by the various states in which Moment Private Wealth conducts business, as applicable. Moment Private Wealth renders individualized responses to persons in a particular state only after complying with all regulatory requirements, or under an applicable state exemption or exclusion. Nothing in this content is intended to be, and you should not consider anything in this content to be, investment, accounting, tax, or legal advice.