Tax Planning Services

With proper tax planning, we can lower the amount of taxes you pay over your lifetime, leaving more assets for you to save, spend, give away, or leave to your family when you’re gone. Tax planning is not a once/year activity but something that should be done on an ongoing basis.

Working with an accountant is important; but most of their time is spent producing an accurate tax return. Your accountant may not be aware of critical components of your financial plan that can impact future tax planning, including future income sources (wages, bonuses, deferred compensation payouts, required minimum distributions, Social Security income, Roth conversions, etc.), future capital gain harvesting, charitable gifting, mortgage refinances, etc. Working with a financial planner who understands every component of your financial plan and collaborates well with your CPA will help lower your lifetime taxes.

RMDs coming from your IRAs and 401k/403b accounts can have a significant impact on your tax liability. They not only add to your income, but may increase the extent to which your Social Security benefits are taxable. RMDs may increase the amount of your Medicare premiums, move you into a higher tax bracket, increase the amount capital gains are taxed, and reduce the amount of your allowable tax deductions.

Planning for RMDs well before age 70½ can create a meaningful reduction in lifetime taxes.  Beginning withdrawals or partial Roth IRA conversions between your retirement and age 70½ (accounting for other current and future income sources), can reduce the tax impact withdrawals have in future years.  In addition, structuring deductions around these income sources can also be of benefit.

Social Security income is subject to tax.  There are several components that will impact the taxation of Social Security income, including the amount of each spouse’s benefit, your other income sources, and available deductions.  Each person’s situation is different. An in-depth analysis is required to determine when you should begin taking Social Security and how your taxes will be impacted.

Most of us move into a lower tax bracket in retirement, but not all.  For those who are in a lower bracket in retirement, you may not stay in that same low bracket after all of your income sources, including Social Security, pensions, RMDs, investment and capital gain income, begin.  Careful planning is required to manage your way into lower brackets throughout retirement, and to minimize your lifetime taxes.

It’s a little known fact that people in the 15% tax bracket (or lower) pay 0% tax on capital gains.  Many of us with significant assets can manage our way into the 15% bracket by delaying Social Security, pensions, and IRA withdrawals, and properly structuring our exemptions and deductions.  This is a valuable component of the tax code that should be maximized.

A: Life insurance proceeds are not taxable. However, after these assets are invested, they can add to your investment income and capital gain tax liability.

Charitable contributions are a valuable tax deduction that lower your tax liability. The higher your income, the more valuable a charitable deduction is.  If you are in a high income tax year (and will likely be followed by low tax years), you are able to accelerate future charitable gifts into high tax years to maximize the tax deductibility of the gift and allow you to give to charities in future years at your discretion.  The tool to facilitate this process is a Donor Advised Fund (DAF).

There are several strategies to deal with high tax years.  First, be sure to maximize pre-tax deferrals into 401k/403b accounts.  This should include your spouse if they are working.  Next, you’ll want to accelerate deductions into the high tax year.  You are able to double up on property taxes (pay current year taxes by January 31 and next year taxes by December 31^st), accelerate charitable gifts from future years into the current year using a Donor Advised Fund, and pre-pay state income taxes.  Collaborating with a CPA is critical to minimize your overall tax liability.

Structuring your income sources, such as Social Security, pensions, required minimum distributions (RMDs), and capital gain/loss harvesting is critical to minimizing tax liability. The amount of your income can directly impact the extent your Social Security benefit is taxable, the tax bracket you fall into, your capital gains tax rate, the amount of your Medicare premium, whether you’ll pay the Net Investment Income Tax (NII), the exclusion of certain deductions, whether you’ll be subject to the Alternative Minimum Tax (AMT), and more.  Understanding these issues and planning properly can lower your lifetime taxes.

If you provide more than 50% of a family member's support, it is possible to list them as a dependent on your tax return.  Additional considerations and income levels need to be met for this to occur.

When you convert assets from a 401k, 403b or IRA to a Roth IRA you pay income taxes on the pre-tax portion that is converted.  It may make sense to do a conversion if you will be in a higher tax bracket in the future.  Making partial Roth conversions, to the extent you can maximize a low tax bracket, can be beneficial to your overall retirement plan and lower your lifetime taxes.