Why Tax Planning Matters for Your Overall Financial Goals

Many times, when individuals or businesses are doing financial planning, tax planning slips through the cracks. It gets deprioritized, skipped over or just plain forgotten. Whether or not you plan ahead, one thing remains true and out of your control — around April 15 of each year, your tax return will be prepared and may result in additional tax liability.

But, there is an aspect of taxation that you can control. With a carefully crafted tax plan in place, you can mitigate your tax liability and therefore lessen the amount of payment on tax day.

A tax plan is a structural component of the financial planning process. It is:

• Proactive
• Focused on mitigating tax liabilities
• A key tool to creating a true synergy between a tax team and an investment team
  
  

Tax Planning is Proactive

In traditional tax preparation, clients assemble information and forward it to their CPA, who then compiles the information and generates a return. In this scenario, there is little to no proactive communication or dialogue throughout the year about mitigating tax liabilities. In this situation, clients often end up learning about tax exposures as they’re writing a big check to the IRS, when it is too late to implement mitigation strategies.

The LTax tax planning process is different. It’s proactive. It centers around tax reviews twice annually, midyear and at year’s end. This approach ensures that Tax Day won’t bring surprises. Being proactive means evaluating issues that could pose an issue on Tax Day, like:

• Recognized capital gains
• Income from passive investments
• Sale of property
• Sale of business
• Change in marital status
• Inheritance
• Retirement
  
  

Mitigating Tax Liabilities

With the previous two years of returns in hand, LTax uses tax software programs to provide a baseline analysis of the tax return. That analysis then lands in the hands of a tax planning expert for a more granular analysis. Clients then receive a personalized tax plan – during an in-person or virtual meeting – complete with observations, recommendations and a timetable for revisiting key items.

Observations and recommendations could include:

• Reconfigure investments considering tax-equivalent yields
• Invest in Qualified Opportunity Funds
• Opportunity for retirement planning
• Passive income generators
• Establish donor-advised fund or private foundation
• Analyze entity structure
• Tax loss harvesting/bracket planning

Tax planning is so nuanced and individualized that everyone – individuals, families and businesses – benefit from a proactive, informed approach. Add in frequent regulatory changes, often obscure or conceptual, and you absolutely want a qualified tax professional on your team.

A Synergy Between Investment and Tax Planning

Financial and estate plans are very, very important, but if those plans haven’t considered tax implications, they could bring big, unwelcome surprises on tax day. Tax events generate through your investment portfolio - capital gains, losses and other events. Therefore, the projected outcome of every financial planning or business decision must be considered on an after-tax basis.

Consider these key questions:

• The maximum federal income tax rate is 37%. Are you bracket planning to minimize exposure to your highest marginal tax rate?
• The maximum capital gains rate is 20%. Are you tax mapping capital gains and losses to minimize net capital gains exposure?
• The maximum Net Investment Income Tax (NIIT) is 3.8%. Have you considered tax-exempt investments, qualified retirement plan contributions and other strategies to minimize NIIT exposure?

 A Proven Method of Saving on Tax Day

Tax planning isn’t the norm, or the standard way of doing business. But year after year, the case is proven—a proactive approach to tax issues today will manifest itself in dollars saved on Tax Day. At LTax, we offer a free tax planning consultation - a forum for us to better understand your situation and your concerns, and share our insight regarding your unique circumstances.

A Shared Mindset for Growth—Get in Touch With Us

With a proactive tax partner by your side, you can feel confident that you’ll mitigate tax liability and avoid surprises on Tax Day.

For more information on how our tax advisors can compile a tax plan for entrepreneurs, individuals and families at no cost to you, contact us here or call us at 561.453.1441.