Tax Planning
Making The Case
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- In addition to investing in a tax-aware manner, we also look more broadly for tax-planning opportunities.
What is tax planning?
Tax planning refers to our review of your tax return to identify potential planning opportunities - both now and in the future - to keep your lifetime tax liability as low as possible. This is different than tax preparation (usually done by your CPA or an online service like TurboTax), which is focused on keeping you compliant with what the government thinks you owe each year.
Making the case
Why is tax planning important?
Taxes touch every part of your financial life. Your tax return is a financial fingerprint: it's completely unique to you, complete with valuable clues and information, all of which is buried in dozens of pages and hundreds of numbers. Understanding your return equips us to have more valuable and actionable conversations with you. Additionally, we can demystify the world of income taxes and help you understand this important piece of financial picture.
How We Help
- It’s benefits enrollment time and you are offered access to your companies deferred compensation plan. The plan allows you to contribute a percentage of your salary to be paid after you retire. You plan to retire in 10 years at 65 and plan to defer your social security income to 70.
Through proper analysis, we can identify the right amount to defer to bring the client into the next lowest tax bracket, identify key phase out thresholds that may be relevant, and control income during the last decade of work. Elections can then be made to have those funds paid out during the 5 year “gap” between retiring and social security, when the client is likely in a lower tax bracket.
- A couple is donating 10k/year to their college. They donate the money as a cash donation periodically throughout the year. Outside of their 10k to charity, they do not have many other eligible expenses that could be itemized on their tax return. For this reason, they take the standard deduction annually. Their charitable deduction is providing them no incremental benefit.
Instead, we built a strategy to open a donor advised fund, which allows you to advance-fund your charitable donations. They were able to pre-fund 5 years' worth of donations using stock that had significant appreciation. This achieved two advantages: 1 – the couple gets the ability in year 1 to take a 50,000 tax deduction (almost 25k more than they would have over the 5 years donating 10k/year); and 2 – they were able to avoid paying the capital gains tax on the 50k of stock. All in, the estimated tax savings in this situation was in the tens of thousands of dollars.