People try, but “adulting” is hard!  Kids, pets, job, relatives, friends, bills, medical problems, car problems, work problems all in the last day, so when I have time I will start tax planning.  Same as….so when I have time I will start estate planning, it’s just so far down on most peoples’ day to day list of things to do that all the other issues just cycle in some complex order that nobody understands and the last two items never seem to bubble up to the top…UNTIL THEY DO!

If you are a business owner, thoughts of tax planning might bubble to the surface a couple times a year, perhaps March 15^th and April 15^th (or later if you have filed an extension). As an employee or retiree, it might come to the surface just once a year, in April. You might get it over sooner, or go on extension and face it later, but it is just one day out of every 365, so like the reverse of Christmas morning, you unwrap the bad news and face the tax bill. For a few weeks after that, the tax planning “to do” circles around in the number two or three position, because the pain of the tax bill is still fresh, but as the pain fades and the kids, pets, job, relatives, friends, bills etc. start distracting you, it slips away. The cycle is complete and most will do nothing, then face the pain of a huge tax bill again in a year.

With estate planning there is an even a bigger problem, as the pain doesn’t cycle annually. It is sporadic and less frequent. Thoughts of estate planning might occur to you at an uncle’s funeral, at your mother’s bed side in the intensive care unit, when you see a close friend or classmate’s obituary.  Or worse, the inner circle, at your husband’s bedside during a terminal illness, or at your wife’s funeral. Of course even after tragic events, estate planning can be easy to ignore, like tax planning, but often the repercussions are much more overwhelming. It makes us wonder, as a human race, why and how we can procrastinate and ignore the ONLY TWO THINGS THAT ARE GUARANTEED IN LIFE…DEATH and TAXES!

All around the country, there are people in an absolute panic because the real tax deadline for personal tax return extension filers is approaching and they are running out of time. The exception would be for those who have been affected by flooding or other natural disasters and may be given an extended deadline by the IRS. Those people may now have additional time to file, but would need to check the IRS website to see if they are in an affected area recognized by the IRS and would be covered by the exception. For the rest of us extension filers, there are some choices that need to be made quickly. The deadline is just a few weeks away. You’re not ready. What do you do? 

The answer is, you get ready.

If the reason you’re not ready is because essential documents are destroyed or missing, you’re in the middle of a divorce, or something is going on that you just don’t feel you have all the information you need to file, then call the IRS and ask them what to do next. Go on the record with an IRS agent and if possible, record that conversation. Collect their badge and ID number, and ask for their response to be sent to you by e-mail. No matter what anyone says to you, even the IRS makes mistakes, and could lose the documentation that your conversation took place.  

Unfortunately, you could get two different answers from two different IRS agents about the same topic. They’re people too, and it is not necessarily a black and white area of the code, even though they may make it sound like it is. Just make sure you document who you talk to and have proof of what they said. Next, get it in gear, whatever you have going on. Even take a sick day from work if needed. The penalties for not filing on time or not filing altogether are usually greater than whatever time spent or financial inconvenience it may cause you. Everyone has to have deadlines for certain things. This one is yours. Get it done.

If you run a business that files on Schedule C and you’re planning on walking into a tax office and dropping a box of receipts on them, don’t do it the day before the deadline. Do it this week, because they will need to create books from scratch and have time to ask you for additional documents, if needed. You’ll need to have time to call mortgage companies, financial planning institutions, etc., and ask for copies of those documents. You’ll need a few days for those documents to arrive, even if by e-mail, but many will only mail you such documents because they can’t e-mail something with your Social Security number on it. 

So, if you’re planning on a last minute document dump on the tax preparation firm, naughty on you, but do the dump well before October 15^th. If not, the job is not likely to get done correctly. So, look at the calendar. If you don’t think you can get it done in time, call the IRS, ask them what to do next, and document, document, document; what, when, where, and who told you to do what. You are running out of time!

People who are worried about the 10 year rule, requiring beneficiaries of inherited IRAs to withdraw the entire balance within 10 years, can double that time with a CRT beneficiary in front of inheritors. What if you really have a big IRA and the 10 year rule just isn’t enough of a stretch to help your beneficiary stay out of the top tax bracket? Or any other reason you care about reducing the negative tax impact from the 10-year rule?

You could use other remaining tax rules to your benefit by setting up a charitable trust. A charitable trust allows the retirement assets to continue growing tax-deferred, even once the assets are distributed from the retirement account into the CRT. Tax is paid only when the trust distributes income to the beneficiary (often a child or other non-charitable beneficiary).  

Essentially, the charitable trust creates the ability to regain the benefits of a stretch IRA. The charity is involved at the passing of the initial, non-charitable beneficiary, but it can also occur at the end of a term, for example 20 years from the account owner’s passing. Whether it is at the end of a beneficiary’s life, or a term, the charity receives the balance of the trust assets at that time. The only requirement is that the trust is designed to leave 10 percent of the initial contribution to charity.  

The IRS zigs and the planners zag, and we all march on with one common truth. People who meet with tax planners are the winners and people who do not often lose out. Plan your tax outcomes!

With signs of fall in the air, it’s time to start thinking about things that need to be done to prepare for winter. The garden harvests are rolling in, fresh vegetables are everywhere and it’s really, really great. Time to fill up your oil tanks before the price change, and at least know where those snow tires are in the back of the garage. It’s also time for tax planning.

There are so many things in the tax code that have time limitations. It’s really time to check in with yourself if you want to actually participate in your bill with the IRS. Taxes can be very much within people’s control, even though they don’t feel that way. If you’re still out on extension, heads up — you have barely a month, so it’s time to finish whatever you have been putting off, and get that stuff into a tax office.

Some people might say “Well, I have until October 15th this year.” Remember, October 15th is the final filing day, so you should attempt to e-file no later than October 14th, in case there are problems. And that means you probably should have your stuff at your CPA done and reviewed the week before. You’re running out of time!

Also, if you’re planning on funding any business related retirement accounts — SEPs, Keogh Plans, anything other than an IRA — this year, those documents have to be in place very, very soon. You don’t have until next April 15th to do anything other than fund personal IRAs. If you’ve been thinking about setting up an account for your business that you can fund with much more than an IRA contribution, the paperwork has to be done and in soon, and the funding often has to happen before the end of the year!

Lastly, there is the overall common sense that if you do a pro-forma return for this year, based on nine months’ income, you can now start to look at just how much tax you may owe by the end of the year, with time to make adjustments. Like start shopping for equipment for your business that you can fully deduct, or other proactive business purchases. The problem is if you don’t know you need to make the adjustments, then how are you going to make them with confidence and with time to think about what you’re about to do?

Bottom line. If you’re on extension, get that 2025 return filed ASAP, then visit with your tax planner to work on optimizing your 2026 tax outcomes!

This last wave of tax filers are quite often the most productive people in our economy. Many are business owners, some with more than one business, or at least in some ways just have a lot going on, which means they usually add and not subtract from the tax base. That said, if your taxes are not done yet, then you’re in a rush (or should be) to get everything ready for filing, which usually means you’re not getting everything done accurately, and very often means you’re not getting any real tax mitigation advice either.

It’s a vicious cycle. You wait to file because you are so busy getting ahead and just plain getting things done, then comes the fear of the taxes that will be due. You forget deductions and have nobody giving you solid tax planning advice, which results in you paying higher taxes than necessary and writing a large check to the IRS. So, the following year you procrastinate again to delay the pain and the cycle repeats.

There are ways to break the cycle and it starts with an “anti-procrastination plan” for how to stop this behavior.

Step one: Gather together all of your current year tax information and a copy of last year’s return and bring it to your tax preparer’s office before October 1st! Have them start the return using the information you have in hand and give you a preliminary return. Taking that step can often help you realize that your fear of a huge tax bill was unfounded and that even with some expense data for your business missing, the result won’t be all that bad.

Step two: Open your calendar and book an appointment with yourself for the following week to finish up your accounting. If there isn’t room, make room. Treat it like an emergency. If the preliminary return delivered bad news then step two is even more important.

Step three: Get that additional information to the preparer and if the preliminary return is still bad news, ask them if any depreciation can be advanced or if any losses from prior years can be carried forward, or can any passive losses be taken. Ask them what else can be done to mitigate the taxes before filing. If you ask that question on October 2nd or 3rd you are likely to get a much more thoughtful answer then if you ask it on October 14th. Once you’ve thought of and done whatever you can, file the return, even if you don’t have enough money to cover the entire bill right now. You may incur late payment penalties and interest, but at least you will avoid failure to file penalties. If needed, make a payment arrangement with the IRS and once the dust settles, go back and take a closer look at everything. If there are major things that you missed that are in your favor, you can always file an amended return.

Step four: If your current tax preparer is not also a tax planner, find one as soon as possible! Ask them to work with you on helping yourself be more accountable to your tax outcomes by meeting with you outside the crunch of the tax filing season, so that you can put a plan together to pro-actively plan those tax outcomes in the future.

Lastly: Start NOW, not in three weeks!

When people are contemplating selling an asset like a house, an investment property, stock or a business asset, it’s usually to make a profit or to raise cash. Sometimes, a house is sold in order to buy bigger (or smaller), to move to a different town to take a new job. In the case of stocks, it might be for the taking of profits, stopping further loses, or again to raise cash. 

One common thread among all of these decisions is that people generally think about them for some time before they act, as usually these are among the largest assets they have. What we see often in the tax planning world is that people sell the asset, and then AFTER they have cash in hand, they call their advisor or accountant and ask, “Is there some way I can avoid paying tax on the sale that’s already made?”.  At that point the response is often, “The sale has happened? No, we can’t help you. You’re going to pay some extra taxes.”

The fact is that there are many tools that can be utilized to reduce, delay and in some cases completely eliminate taxes on all these kinds of sales, but the vast majority of those tools that tax planners can use to help depend on a time line.

For example, before you sign an agreement with a real estate agent and list your house for sale, you have all the planning options that the tax code allows available. After you sign that document, you lose an entire category of planning techniques. So eight planning options might be reduced to only four with that signature. Then, at the closing of the sale of the property, if a qualified Intermediary is not used to hold the funds, you may lose the ability to do 1031 exchanges in various forms.

The list of planning options gets smaller and smaller until, by the time the client calls the accountant and asks, “Can you help?”, the question becomes, “How long ago did you sell it?” If the answer is “five months ago” then there is one planning option left. If the answer is “seven months ago”, the answer is, “Unfortunately, no, there are now no planning options left.”

So, the moral of the story is, if you are thinking about selling an asset, before you take any action, sit down with a tax planner FIRST! This will allow you to consider all the options available for mitigating some or all of the tax consequences of the sale. Every step you take in a sale process without planning first takes away more options!

When you start tax planning with a new client, the first thing people often ask is why the accountant or CPA they are using doesn’t think or act the way you do in discussing the hunt for possible tax savings. After all, the current CPA is smart, trustworthy, running a successful accounting business and well respected in the community. So, why are you telling them all these wonderful new tax savings ideas that their CPA has never mentioned? There are many explanations, but the simplest is how the accountants themselves view the job that they do.

Often, accountants think that the profession of accounting in its simplest form is the job of telling the story of money that has already come in or gone out, and they are reporting “history”, which is very different than telling a story that will “change history.”

What? Can accountants “change history”? No, they cannot. But, the history of money in and out doesn’t end when the event itself happens. It ends the day the accounting is sent to a taxing authority. And, even after it is sent, it can still be changed again!

For instance, a business owner buys a $50,000 delivery truck for 100% business use, and the accountant puts the truck in a standard depreciation schedule of 5 years. Basically reducing approximately $10,000 per year of the company’s taxable income for the next 5 years. The company then has a great year and after the owner’s personal taxes are completed he ends up with the highest tax bill he has ever been faced with. The CPA recommends putting money (that the owner would rather keep in order to expand the business) into an IRA to lower the owner’s tax bill. He is told, “That`s all you can do at this point.” However, that is actually not all that can be done, since the IRS allows accelerated deprecation, which means the owner could amend the Corporate 1120S and elect to take the entire $50,000 as depreciation for the delivery truck, all in the current year.  So, rather than having to fund the IRA, he can now use that cash flow to expand the business as desired.

Many CPAs are almost robotic when it comes to simple tax planning. Often, they decide FOR the business owners what’s best for them, instead of explaining more and working in tandem with them.

Accountants often see the job of accounting in a very narrow view, and looking around for additional tax savings, or even more so, changing business practices in order to lower the future tax bill is “not the job they are hired to do.” However, we think this is a very important part of any good plan. That’s why our firm states proudly that we are proactive tax planners!

What’s the catch? Why wouldn’t everyone use tax planners then?

Mainly because tax planning comes at a terrible cost that most people just do not feel they can afford…TIME!

Time answering questions, gathering documents and discussing and learning enough about the recommended changes to achieve tax savings. Time learning something new. The cost is time and everyone is already so busy!

Our question to you is what is your time worth? If we had a 30 minute meeting to review your last two years’ tax returns, then a follow up meeting with one hour of sharing plans on how to pay less tax, and then up to two and a half more hours over a few weeks or months educating your current accountant and setting up new processes, and all you saved was $4,000, would it be worth it? Well, that’s $1,000 dollars per hour for your time! What if you are a business owner? The time is often the same and the savings can be $40,000 or more. Would that time be worth $10,000 per hour?

Well, do they or don’t they, actually? Long debated and often manipulated by the media, the topic of the wealthy and taxation has many, many complex points and counterpoints. First, when people say that, they often don’t define what kind of tax. The people hearing the comment usually go to federal personal income tax in their mind as TAXES. However, if a wealthy person owns 20 C corporations, with each filing their own tax returns, those C corporations pay their own taxes and unless the wealthy person needed to take a dividend or other distribution, then they could pay zero federal income tax, even though their companies paid potentially millions in taxes themselves.  

The kinds of taxes people pay depends on their situation. For instance, a blue collar worker who pays 22% federal income tax, but rents his home, pays no property taxes (at least not directly). The wealthy man who owns 20 C Corporations might pay 10% personal income tax “as a person” but pays millions in property taxes for those factories, millions more in payroll taxes for the hundreds of employees they have created jobs for, and at death will pay tens of millions in estate taxes that the blue collar worker never pays. But the media simply reports that the rich guy paid less income tax than that working American…outrage! 

There are many advanced tax strategies in the tax code that do however give wealthy people the opportunity to avoid what should be a type of income that does flow down to their personal tax return, so they can legally and ethically pay less tax. So, to be fair, it’s not that working people have more tax to pay, it’s that they don’t have as many “special situations” in the code to help them manipulate their own outcomes. That being said, they do have some tax saving opportunities, but most don’t take advantage of any at all. It’s not that the blue collar guy doesn’t have the tax planning advantages of the “rich.” It’s that they often ignore the ones they do have.

Our point? Instead of complaining that the rich have unfair tax advantages, first get a tax planner and spend time looking into everything you can do to improve YOUR tax outcomes that you are currently not doing. It’s a good bet that most people never will, but many will still complain and point fingers. But if they’re not working with a tax planner, then they should be pointing that finger in a mirror!

Often people will have one-time “Income Events” that greatly increase the income tax due in that year. Finding ways to mitigate that additional tax, especially for younger people, can be challenging. In some cases, setting up a Charitable Lead Trust (CLT) in order to receive an upfront income tax deduction might be viable option. A person who has significant and unusual taxable income in a particular year can establish the grantor lead trust and use the charitable income tax deduction to mitigate the impact of taxes in his or her situation. An example might be someone who has received the proceeds from selling a business, or a stock option at work is coming due. A far more common and likely example is someone who has inherited an IRA. These situations will trigger an unusually large amount of tax because the profits or earnings will be taxed as ordinary income at the highest possible marginal tax bracket.

It should be noted that the extent to which the donor can use the income tax deduction will be limited to a portion of his or her total income for the year. In addition, the donor can claim unused portions of the deduction in up to 5 additional carry-forward years.

Impact of Tax Reform

Since the passage of the Trump Tax Cuts and Jobs Act, there is a greater incentive for donors to create grantor CLTs. These trusts allow donors to consolidate deductions for future donations into a larger deduction for a single year. Against the backdrop of the increased standard deduction and the elimination of many other deductions, grantor CLTs provide significant benefit to taxpayers who itemize.  In some instances, creating a grantor CLT may enable a donor to itemize who otherwise would be better off taking the standard deduction. For lack of a full legal explanation, the asset is “loaned” to a charity so that the charity can earn income for a certain period of time, and then given back to the donor, which ends the charity’s connection, as if it all never happened. There are more details of course, but in oversimplified terms, would you rather pay taxes now to the IRS, or loan money to a charity for X number of years to a cause you care about and then get the money back? Normally younger people don’t benefit from Charitable Remainder arrangements, but the person’s age is not the calculation that matters, so these CLT arrangements are equally beneficial, young or old.

Have you worked toward losing weight in the past because you want to look more attractive, or fit into an expensive wardrobe you already own? When you lose weight you often also lower your blood pressure and/or cholesterol as a bonus. It might not be the primary motivation, but the extra benefit is of course welcome!

If you are a business owner, then we pose this question. Some time ago you had an idea. Over the years your turned that idea into a successful and profitable business. Have you properly protected what you worked so hard to build? An unexpected turn of events could put your biggest asset at risk.

Did you know that moving business earnings into a qualified plan could protect your assets as well as provide a current tax deduction? Money in a qualified plan is generally protected from creditors, or at least better than other ways you can store capital. That means no one can take away what you have earned. You re-positioned the money to save on taxes, but ended up also protecting things much better from a legal perspective.

There are many examples like this where proper tax planning can also provide other benefits to you, if keeping more of your own hard earned money isn’t enough of a reason! The side benefits of tax planning are like the icing on the cake. So stop putting it off. Go see a tax planner today!

Most people feel like their taxes are a sleeping giant. They tiptoe around them as if staying away from the topic will keep it from waking up. Then at tax time when the giant awakens, they often act as if the final tax refund or bill is a surprise. Many working people try to change their withholding to get their tax outcome “dialed in”, but that joy of having a refund of “XYZ” coming is so often way off from what was expected and they are shocked. That’s because taxes are dealt with one time a year for most and their scenarios that lead to a consistent outcome change. For example, they go from no kids, to having kids. Children on a 1040 adds EIC tax credits and daycare deductions and allows lower withholding from take home pay. Then five years goes by like a flash and the kids stop daycare and go to school, but they don’t have more withheld when the kids get on the bus and the missing day care deduction is a large increase in tax that erases their expected refund. There are many lifetime events that shift people’s tax outcomes but it most often is an unpleasant surprise.

Tax preparers could tell people at tax time, “Hey, your children are not going to daycare anymore so you better increase your withholding!” But few preparers give any proactive advice. They are too busy, don’t think proactively or think people are more aware and should already know what needs to be done without being prompted.

Then there are life events, elections and world events that also shift tax policy. Its on the TV and or social media every day, but people look right past those events without mentally admitting to themselves, “Hey, the government is printing and giving away money it doesn’t have again. I better increase my withholding because my taxes are going up.” That’s an unfortunate disconnect, but every time we build a new playground, open a homeless shelter, send another bomb to a foreign country to defend itself or give a tax break to a guy with a super yacht, taxes are likely going up. No matter your political affiliation or lack thereof, every time we do anything for the world or ourselves, your taxes need to go up or spending needs to come down, or the economy needs to grow the tax revenue. Also, we have all the debt we have been carrying like the worst credit card ever created. Just the interest on that debt is killing us as a country.

We have been in tight spots before as a country, but even during WWII, our GDP versus spending has never been as bad as it is today.

Empower yourself with a great (not just good) tax planner, as you are going to need to learn, engage and understand what you can do to not pay more than your fair share, because over the next ten years you are going to be asked to pay for much more.

Sometimes “tax planning” can be easy: “Open an IRA and it reduces your taxable income.” Other times it can be quite complex: “Cost segregation” on a building means hiring an engineering firm and having a structure broken down into its many components on paper, with each value separately listed; the frame, wiring, heating systems, etc., and taking write-offs, generally much faster than simply taking a standard approach. These are both ways to lower federal or state taxes.  

For the people who have made large amounts of money or have larger estates, the year to year tax bill is not as much of a concern as the “Death Tax Bill.” Planning for them can be simple or complex as well, but the tax they are trying to avoid is the largest tax they will ever face and could collectively be more than all the annual federal taxes they ever paid during their entire lifetime (although technically, it will be their heirs who actually pay it, as they are deceased).  

One such planning trick these people often use is to arrange legal ownership of their companies or assets so that it’s broken up into parts. Then they can claim to the IRS that the parts have much less value than the whole, and gift those parts away, while still living, to trusts, children and other heirs.

Those steps look like this:

1. Take almost any kind of investment – a private company you own, a piece of real estate, a stock portfolio – and put it in an LLC or another legal entity.

2. Divide the LLC into pieces and spread it among your heirs, or trusts created on their behalf.

3. Claim that the combined value of the pieces is less than the value of the whole, because no one entity controls the entire investment. Some advisers insist that their client’s stake is worth 30% to 40% less than it would otherwise be, with bigger discounts for smaller stakes lacking voting power over the LLC.

4. Later – perhaps after you die – your family can get together and sell the entire asset on the open market and profit from its real, non-discounted value.

This works even for an LLC containing publicly traded shares that, if they hadn’t been locked up in the LLC, could easily have been sold off for their full value. Tax planning means different things to different people, with the goal of avoiding different kinds of taxes in different situations. But there is one constant, one thing across the board that’s true for everyone. If you haven’t hired a tax planner or a financial planner that is tax savvy, then you won’t know what’s possible and you might pay more than the folks who have engaged a planner.

We talk a lot about people not doing tax planning and not spending more time creating the tax outcomes they want. We urge people to understand that it’s within their own control and that tax outcomes can be legally and ethically manipulated. We go on and on about the benefits.  But…we understand why it’s so rarely done!

It is because almost nothing in people’s lives has more constant change than taxes, and keeping up with all the changes can be an overwhelming challenge. What if every four years your banking rules changed, “Oh I’m sorry John, we no longer pay you interest, now you pay us interest to keep money here.” Or “Now you have to send in your mortgage payment daily, not monthly.”?

We all have complex and often busy lives, so when the IRS changes at least a few of the rules every year (or sometimes even more frequently) it’s easy to understand why people seem to give up and just justify inaction with, “It’s over my head” and “They’re going to get what they want from me one way or the other” type statements.

The problem is magnified because people don’t always visualize what the costs are to not paying more attention. If people have an adjustable rate mortgage then every time they get the statement they look to see what the increases or decreases are, plus the mortgage companies must by law do calculations for you and say “The interest rate change means you will pay $18,400.01 more over the life of this loan” and seeing such statements makes people react. The IRS doesn’t have such requirements so people have become disconnected. What if at work your paycheck stub said, “By not maxing out your 401(k) contribution, you will pay an additional $1,453.88 in taxes, and over the next 21 years that represents $31,890.00 retirement dollars you won’t have?”

People need to understand that not overpaying taxes is another potential form of retirement savings. It matters, and if they can’t understand the rules they can simply hire a tax planner that does. This isn’t a game  It’s the life you get and the retirement you get, and actions matter as well as inaction! Find a tax planner or get educated yourself; or get taken advantage of.

Most business owners in any five year period can answer yes to at least one of these life event questions that would cause them to need to know what their company is worth.

1. Are you contemplating the sale of your business?

2. Are you working with or bringing in a partner?

3. Are you contemplating or currently going through divorce proceedings?

4. Are you potentially going to have to defend yourself or your company in court?

5. Are you looking for financing?

There are other possible reasons of course, but the point is that there are many times a business owner finds himself or herself needing to obtain a proper business valuation for their company. Unfortunately, it’s often an afterthought until they are forced by a judge or a lawyer or a bank to do so, when it actually should be a target on a scoreboard in their office! A certain business value should be set as a goal and every decision they make should be in alignment with not just profits and day to day operations but should also include asking themselves, “Will what I’m about to do help this year’s bottom line, but hurt my company’s overall value?”

An example would be a retail business that stops worrying about building maintenance or curb appeal. It might save a few dollars to stop spending that money, but after some time, new or even existing clients can be driven away by the obvious disregard for those components. Would you want to buy a cake from a baker who has not fixed his broken store window, but instead just taped up the crack, and who has not mowed the store lawn or planted flowers and has allowed both to be overgrown with weeds?

When it comes to selling a business there is a path that successful transfers should take, and the timeline is years, not weeks, if done correctly. What we often see is a heart attack or divorce leading to an owner who tries to sell within the following months. That’s a shame. What they should do is bring in a transition specialist while the thought of selling is on the far horizon. That specialist should develop plans to increase the value of the business, so that the two prior years’ tax returns reflect those higher values, as that’s what most buyers and financiers of buyers look at. That transition specialist can also help them identify many issues that may not even be on their radar screen.

Selling a business can a very difficult and complicated transaction, and failing to understand the tax consequences is one of the biggest mistakes many business owners make. They negotiate a great price, but then do not know that the terms and asset descriptions of what’s being sold can make a HUGE difference in the final after tax amount they will receive if proper plans are not put in place ahead of time to help mitigate those taxes! Engaging a professional who has helped many other owners successfully sell their business will help ensure that less mistakes are made.

I’ll take a day hike up a local hill without help, but to climb Mount Everest takes extensive planning and a Sherpa to help guide you. In the same way, selling your business, if done properly, requires the help of a tax Sherpa! If you’re thinking about selling your business in the next few years for whatever reason, make the call today to an experienced business transition specialist who can help you deal with all the issues described above, not a business broker who is strictly in it for the commission.

People who earn more than a certain amount and who are enrolled in Medicare Part B or Medicare Part D, or both, will face additional premiums, called The Medicare Income-Related Monthly Adjusted Amount (IRMAA).

IRMAA “surcharges,” which is a replacement word for a tax, are based on income earned two years prior to the coverage year. So, for example, a client enrolling in Medicare in 2026 would pay an IRMAA surcharge based on their 2024 tax return.

Generally there are two types of people that pay IRMAA surcharges: Those who might be affected and those who will always be affected. Because it is income based, people with an unusual income event may only be affected once, while people with higher incomes may always be affected.

The surcharge assessed depends on a special modified adjusted gross income (MAGI) calculation, different from that used to calculate income tax.

To over-simplify, the surcharges apply to single filers earning over $109,000 MAGI and joint filers earning over $218,000 on a sliding scale, with the maximum surcharges assessed on single incomes over $500,000 and joint incomes over $750,000.

Many types of one time income events can trigger these surcharges, including withdrawals from retirement accounts, inheriting IRAs, cashing in certain “MEC” life insurance policies, selling stocks and bonds or flow through from mutual funds and more.

People who simply have large pensions or just large estates with high incomes, business owners that work while on Medicare and trust beneficiaries would likely always owe the additional surcharges but would likely be less surprised by them as an annual event.

People with one time or occasional spikes in income may be able to “tax plan” the surcharge away, if they are paying attention, by harvesting tax credits, making charitable donations, advancing depreciation on real estate or business assets, or using other planning tools. The critical issue is awareness.

Typically, the only people who will be aware of the surcharge in time to take action to lesson their income and undo the surcharge are people who use tax planners and not just tax preparers. Tax planners will usually draft a tax return in the fall with each client and would see the “surcharge income” issue and discuss counter-measures to avoid IRMAA. Tax preparers usually don’t receive paperwork from the client until the next year when it is too late to fix it. If your income is (or might be this year) at or near the income thresholds above, contact a tax planner and start the conversation.

This is the time of year when people often start taking personal inventory of how fortunate they are and start considering charitable contributions as a way to “give back” a little. For some, it’s an automatic budget item in their day to day lives, but for others it’s a new activity.

For many years the IRS has helped people give by allowing charitable contributions to be deducted on schedule A when they file their taxes. The tax deduction value of those gifts changed with the Trump tax code simplification, as many people no longer need to file a Schedule A due to the higher standard deduction.

Many people are still ingrained in their old charitable giving habits and aren’t aware that they can, and often should, do it differently to maximize their tax benefit. Not everyone can do a Qualified Charitable Distribution (QCD) from their pre-tax retirement accounts, but for those who are old enough that they have to take Required Minimum Distributions (RMDs) from those accounts, doing a QCD is a more direct and beneficial way to accomplish tax reduction. Unlike a charitable deduction, which provides no tax benefit if there is no Schedule A filed, a QCD directly lowers your Adjusted Gross Income (AGI) as well as satisfying up to $111,000 ($222,000 for MFJ) of this year’s RMD, whether a Schedule A is filed or not.

And the SECURE Act 2.0 legislation also allows donors to direct a one time QCD to a charitable remainder trust or charitable gift annuity!

Some donors may also find that QCDs provider greater tax savings than cash donations for which charitable tax deductions are claimed, since the IRS assets go directly to a charity and are not included in taxable income and therefore are not added to adjusted gross income (AGI) on the tax return. AGI is used in several key calculations, such as determining the taxable portion of Social Security benefits or what deductions and credits donors may qualify to receive.

Talk to your tax planner today if you think you could benefit from this special provision in the tax code.

Ask anyone if they “pay too much income tax” and the knee jerk reaction is almost always, “Yes!” and without much hesitation. Why do we call that a knee jerk reaction? Because if you then follow the question up with two more questions, “What did you pay in federal tax last year? And/or what bracket are you in?” they almost as quickly say, “I don’t remember, or I’m not sure.” Or they might guess at a bracket percentage, but usually not correctly. We’ve even had people profess the pain of paying too much in tax only to discover that not only did they get back all of their withholdings, but they were given tax credit refunds of money they did not pay!

Why? When you ask the same people, “Do you pay too much for your cell phone, your car, your mortgage” etc., some will give you the same response, but most will say, “No, I got a good deal” and may even elaborate with details about a sale they took advantage of.

Human nature is our best guess as to why this happens, or perhaps that the tangible smart phone or car is easier to value than the intangible ability to drive to work because someone plowed the road for you before you woke up, or that the reason you have a job is because the military has kept you free!

Our quest continues, so if the tax bill you pay is the biggest, worst thing in your budget, and you spend many hours looking for deals when spending money on cars and homes, then why do we have so few clients allow us to proactively shop for tax credits, tax deductions and other breaks on their behalf during the year and not just 10 minutes before the filing deadline? The most common answer we get is, “Oh, well I don’t want to cause an audit!”

An Audit?! Oh no, lions and tigers and audits oh my, lions and tigers and audits oh my! Like the wicked witch in The Wizard of Oz, stirring her smoking caldron, We can hear her threat, “I’ll audit your taxes my pretty, and your little dog’s too!”

Often, we ask our self-employed clients if they work from home, and these days many say yes. But the follow up question, “Do you take a home office deduction?” is often answered “No! I don’t want to trigger an audit!”

The IRS recognized several years ago that so many people legitimately work from home that they created an option to file a Home Office EZ form (the home office deduction is now only available to self-employed individuals). You put down the square feet of your apartment or home and the square feet of the home office room you use and check EZ, and the IRS does not require any additional information or proof of expenses, and they give you $5.00 a square foot without question (maximum 300 square feet)! They aren’t going to audit an EZ form. EZ forms mean you don’t have to be bothered with record keeping!!

There are many proactive, legal and ethical things that can be done to lower peoples’ tax burden. Others require extra record keeping and effort, but if the taxpayer does a good job at those simple requirements, then responding to a letter audit can be as simple as emailing or faxing the records to the auditor, often avoiding a face to face meeting. If you are missing required records and they “disallow” the deduction, you simply owe a little refund back with some penalties and interest. It’s not a colonoscopy, it’s “Audit disallows $2342.18, please pay us $234.00 more tax and a few dollars in penalties and interest.” The end.

It may sound odd when you say it out loud, but after considering all the facts, it’s quite true.

It’s an emotional but understandable reaction to think you always want to lower your tax bill as much as possible. However, except in the case of death, the tax code is basically a case of “tax me now or tax me later.” In many cases, to lower your current tax bill means that income avoided or deductions taken now are going to come back into your life at some later point. One example would be an IRA. You put money in an IRA and lower today’s tax bill, but those dollars will need to be taxed at some point. When you start taking withdrawals from the IRA (usually in retirement), you will pay tax on that income based on the tax rates in effect at that time.

So, did you really save anything? Sometimes, yes. If you were in a 22% tax bracket when you funded an IRA, and then in retirement you are in the 12% tax bracket, then you saved in two great ways. One, the un-taxed money earns interest, and interest on interest on all that money will be larger than the interest earned on an after tax remainder over the same time period. Then, that larger amount is taxed at 10% less in this example.

However, few people really end up with such a simple and clean fact pattern. Working families with kids that earn EIC and other credits are often feeling over taxed (because with kids every penny is needed), but in reality they are often only in a 12% tax bracket. Then they put money in a 401(k) and by accident avoid paying 12% tax on those contributions. As they continue to work and advance in their careers and the kids grow up and move out, they are earning the best money of their career and they retire into a 22%, 24% or even a 32% tax bracket. Then eventually they are forced by IRA RMD to take that money out and give the current tax bracket percentage to Uncle Sam. They avoided 12% tax to pay 24% or 32% tax. Very bad deal for them.

What is the moral of the story? Go to a tax planner and do some thoughtful and proper tax planning. Don’t go in with the ideal that they should always lower your current bill using whatever means necessary. Go and ask, “Should I lower my bill?”, then talk through all the possible future fact patterns and use all those facts to decide what to do now. 

In the “old days,” you went to the general store for your dry goods, the blacksmith for your horseshoes or tool repair and likely had your own cow and chickens for milk and eggs. Fast forward, you went to a lawyer to get a will, an insurance rep to get a policy and an accountant to get your taxes done. There was no internet, so information was something you had to gather and organize yourself. You would talk to a few co-workers, a family member, a mentor and then take actions based on the limited intel. Back then, you would sit with a financial advisor, and if they were a big deal they might have a stock ticker pumping out tape right there in their office. WOW!

They didn’t do their own taxes. They used a CPA and recommended that you do the same. When you asked a question about how the trades they recommended would affect your tax bill they said, “Don’t let the tax tail wag the dog!”

Perhaps before information was so plentiful and free flowing into everyone’s pocket through the super computer we all carry around and call a cell phone, that answer was in some ways a best answer for the situation. Or perhaps it was a cop-out from someone who didn’t want you to know that they should know the answer to your tax based query, and even be able to craft advice with those considerations in the mix, but didn’t.

Fast forward to now. You can have a three way face to face meeting, all in your own homes and offices, on those same pocket sized super computers mentioned before. You can ask, “If I sell this stock I’ll make a tiny profit, but what will Uncle Sam take back for his share of the win?”, directly to the CPA, while the financial advisor listens. These days, many tax people now also have financial licenses, so they can provide combined advice. Even more financial advisors own tax offices, employ CPAs or EAs, and whether done face to face or over cloud technology, provide tax planning and financial planning under one roof.

If you are seeking advice from an insurance agent or a financial planner and you ask the question , “How will this affect my taxes?” and the response is “Don’t let the tax tail wag the dog!” or any other non-answer for that matter, stand up and don’t walk out of their office, RUN!

Go home and find a new one, ASAP.

First, let us make it clear that we aren’t saying that your CPA or accountant is doing anything wrong. The accounting industry is one of the most honorable and respected fields around. That being said, there is a misconception that they are going to be proactive when advising clients about their taxes, and that’s just not part of the training most have received. Certainly some are, but the majority who know things about steps a business could take to perhaps be more aggressive on tax planning for the future, don’t feel it’s their responsibility to pursue a client in engaging in alternative accounting choices or behaviors.

A good example is “Bob” who owns a tire shop that has grown from two employees to three locations and 32 full and part time employees. The accountant did the payroll himself at first, but when they grew to 11 employees he set them up with ADP to handle the growing job. Now with 32 employees, the business would benefit greatly by joining a PEO (professional employer organization), saving as much as 50% on payroll costs and adding great HR and access to large group health insurance and DI and much more, but the CPA is busy and the company is still very profitable. “If it isn’t broken don’t fix it.” So the CPA says nothing about looking into a PEO.

The procedures for compensating yourself for your efforts in carrying on a trade or business are similar. The owner has been paying himself $85,000 a year because that’s what he needed to cover his lifestyle. He took it all as W-2 wages, even though the IRS offers information on averages of compensation and the business owner could have used a combination of wages, loans, dividends and even rent to receive the same amount of spendable dollars while paying much less federal tax.

The options available will depend on the type of business structure you elect. Below are topics that frequently arise when new business owners ask the IRS questions about how to pay themselves. A loan by a corporation to a corporate officer should include the characteristics of a loan made at arm’s length. That is, there should be a contract with a stated interest rate, a specified length of time for repayment, and a consequence for failure to repay the loan. Collateral would also be an indication of a loan. A below-market loan is a loan which provides for no interest or interest at a rate below the federal rate that applies. If a corporation issues you, as a shareholder or an employee, a below-market loan, the lender’s payment to the borrower is treated as a gift, dividend, contribution to capital, payment of wages, or other payment, depending on the substance of the transaction.

See “Below-market interest rate loans” under Employees’ Pay/Kinds of Pay/Loans or Advances in Publication 535, Business Expenses for more information. Because an officer of a corporation is generally an employee with wages subject to withholding, corporate officers may question what is considered reasonable compensation for the efforts they contribute to conducting their trade or business. Wages paid to you as an officer of a corporation should generally be commensurate with your duties. Refer to “Employee’s Pay, Tests for Deducting Pay” in Publication 535, Business Expenses for more information. Public libraries may also have reference sources that provide averages of compensation paid for various types of services. The IRS may determine that adjustments must be made to the income and expenses of tax returns for both the corporation and an individual shareholder if the officer is substantially underpaid for services provided.

What’s our point? Come in and let us review your current business and personal tax returns and we’ll give you options to discuss and questions to ask your CPA or accountant, so that you can be sure you are taking full advantage of the tax reduction opportunities available to you within the tax code.

Have you ever seen a cat on the side of the road that waits until the very last second and then darts across the road in front of traffic?

Ever see one that didn’t make it and think, “Some child is going to be very sad soon.”? I always wonder what makes the cat wait until the last second, but then again that’s what most taxpayers seem to do.

They wait until February or March with a filing deadline looming and then dash out in front of a tax preparer and beg, “Is there anything we can do to lower this?” 

Like the cat, perhaps the preparer has an idea and they miss getting hit with the entire bill, but that doesn’t happen often. Most taxpayers in that situation end up as roadkill, tax burden wise.

If you could talk to the cat you’d say, “Why don’t you go sooner, or wait until the car passes and then walk across the street safely?”

That said, we the tax planners all over the U.S. would like to invite you the taxpayers to walk calmly into our office any time between now and Thanksgiving and say, “What can we do about this year’s tax bill?” We can methodically and carefully show you many, many concepts that will get you to the other side of the road with your tail still intact.

Well, do they or don’t they, actually? Long debated and often manipulated by the media, the topic of the wealthy and taxation has many, many complex points and counterpoints. First, when people say that, they often don’t define what kind of tax. The people hearing the comment usually go to federal personal income tax in their mind as TAXES. However, if a wealthy person owns 20 C corporations, with each filing their own tax returns, those C corporations pay their own taxes and unless the wealthy person needed to take a dividend or other distribution, then they could pay zero federal income tax, even though their companies paid potentially millions in taxes themselves.  

The kinds of taxes people pay depends on their situation. For instance, a blue collar worker who pays 22% federal income tax, but rents his home, pays no property taxes (at least not directly). The wealthy man who owns 20 C Corporations might pay 10% personal income tax “as a person” but pays millions in property taxes for those factories, millions more in payroll taxes for the hundreds of employees they have created jobs for, and at death will pay tens of millions in estate taxes that the blue collar worker never pays. But the media simply reports that the rich guy paid less income tax than that working American…outrage! 

There are many advanced tax strategies in the tax code that do however give wealthy people the opportunity to avoid what should be a type of income that does flow down to their personal tax return, so they can legally and ethically pay less tax. So, to be fair, it’s not that working people have more tax to pay, it’s that they don’t have as many “special situations” in the code to help them manipulate their own outcomes. That being said, they do have some tax saving opportunities, but most don’t take advantage of any at all. It’s not that the blue collar guy doesn’t have the tax planning advantages of the “rich.” It’s that they often ignore the ones they do have.

Our point? Instead of complaining that the rich have unfair tax advantages, first get a tax planner and spend time looking into everything you can do to improve YOUR tax outcomes that you are currently not doing. It’s a good bet that most people never will, but many will still complain and point fingers. But if they’re not working with a tax planner, then they should be pointing that finger in a mirror!

Many people who do not deal in the tax preparation or planning business think of taxes as something to deal with one day per year. Like Christmas, only not as good. So perhaps more like “Grinch Day.” Nevertheless, it doesn’t get a lot of attention after April. It drifts into the “Thank goodness that’s over!” mental space and goes away until the new year.

It’s different for self-employed small business owners, as tax related issues are dealt with more often, but it’s still mechanical in nature. “I’ve got to go deposit payroll taxes today” or “I need to send in my 941 quarterly payment this week.” But still, their thoughts are not focused on proactive activities, but more so on responsibilities on a calendar.

This is a shame because it could be, and should be, very proactive in nature. Instead of “I’ve got to send in my 941 quarterly payment this week” it could be, “What could I do this quarter to not owe a 941 quarterly payment?”. “Oh, I know, a few of our employees are having childcare issues and we have two break rooms. I’m going to turn one break room into a daycare as my tax planner suggested, since there is a tax credit for that which could offset my 941 amount due, and it will help me with the hiring and retention of employees.” (Code Section 45F)

In fact, the Employer-Provided Childcare Tax Credit offers employers a tax credit up to $150,000 per year to offset 25% of qualified childcare facility expenditures and 10% of qualified childcare resource and referral expenditures. This is just one example of things the business owner could be focused on if he is working on taxes proactively throughout the year, rather than only re-actively on compliance! Why don’t more people and businesses do this? Because they are working with a tax preparer or bookkeeper, rather than a tax planner who is trained in the proactive tax planning space. Bottom line: Go search out and engage with a tax planner!

If you pay attention and plan your tax outcomes proactively, there are many things you can do to reduce your tax bill. But the planning and the resulting activities that you need to engage in to achieve those outcomes are all year-round actions you must take, not just things to do the week before you file. Start by opening your calendar and marking a day each month to spend an hour on your taxes. That’s 12 hours a year. If when you file your taxes those year-round activities saved you $1500, then you were “paid” $125.00 an hour, which is worthwhile! If you saved $10,000.00 in taxes, that would be $833 per hour. Sign me up for that job!

Start with looking into your withholding, as many taxpayers are surprised at tax time with a bill they were not expecting. Owing a large lump sum to Uncle Sam in the middle of winter, just after the holidays is not fun for anyone! There is no great mystery to withholding. There is a link on the IRS website,  https://apps.irs.gov/app/tax-withholding-estimator where you can enter your data and it will tell you what to withhold. Then you give that number to HR. It is easier to have $51.92 less per pay period take home than to come up with $1350.00 at tax filing time.

Next, ask HR if there are any pretax saving, benefits or other retirement plans you can participate in. Same concept, if you already spend $700 a year on your health, medications, doctors’ visits, etc., and you’re not putting that $700 in your employer’s HSA, FSA or other pretax account first and paying out of that, then you’re missing the tax planning opportunity! With one of those planning hours, add up everything you spent on your health last year, look at the employer’s rules for what items can be purchased through the FSA, then add it up, and go to HR and have at least that averaged out and deducted pretax from each pay period. You could argue that paying into a 401(k)s is using money that you don’t have in your tight weekly budget, but participating in an FSA/HSA when you are already spending after tax on health items is a no-brainer that you cannot “argue away,” as it saves you dollars and doesn’t take away from your weekly budget.

We could make this a lengthier blog by detailing many other tax planning strategies, but we hope the point has been made. This needs to be put on your calendar and worked on monthly, in steps by you, as a “hobby,” and given a reasonable amount of time, you will find there is a lot that can be done. Watching your favorite online series for the third time instead is not going to put money in your pocket!

When planning ahead, or just engaging in their day to day operations, most business owners at least occasionally think about tax deductions. A business dinner that can be partially deductible, or a new machine that can be depreciated. However, they often don’t think about or plan how to acquire other tax credits, which can often be much more valuable.

Tax credits are often transitory, with the benefits increased or reduced from year to year, or sometimes eliminated altogether, only to be brought back again several years later. Over the last few decades we have seen some popular credits renewed or in some cases even made a permanent part of the tax code.

Small business owners seem to often not be aware of many of these tax credits because their accountants are not tax planners by nature, and many think that the majority of tax credits are only available to larger businesses, which in reality is often not the case.

Many people are only made aware of tax credits by salesmen who are promoting the product that has been blessed with a credit, often as a result of relentless lobbying by their industry. Hence, the “heat pump wave” going on around the country as the result of a refundable credit that homeowners are taking advantage of in large numbers. Business owners have many tax credits at their disposal, some of which are not connected to a purchase.

If you’re a business owner who would like to reduce your tax burden, meet with a tax planner and ask about all the credits available in the code today. You might be surprised what you discover!

It’s hard to be logical all the time about everything. The most financially successful tax clients we serve at least attempt to force themselves to be logical, for their own benefit. For instance, our parents, as well as a subset of the economy including some popular radio show based advisors like Dave Ramsey, say you should pay off your home and have a “free and clear” deed as a goal (they are wrong in most cases by the way). That kind of thinking is emotional thinking, mixed perhaps with some presumptive attitude about what the general populous is capable of. “Well, we know we can’t get people to do what would really be best for them based on pure math and logic because its complicated and would require that they educate themselves, so the next best thing we can get them to do is (insert substandard advice here).”

If advisors did not decide in advance what people are capable of, they would explain the math and the tax code and most people would be better off managing their home mortgage as an asset, and many people would also be better off never paying off a mortgage, but instead building an equal value or even more equity outside their home. With the current tax code altering mortgage and other deductions, everyone needs a refresher.

How does this relate to wasting time and money?

People will spend countless hours talking to many banks and other lenders trying to find the best rate, but no points because they feel they understand that part, so they can help themselves without outside advice. What they should do is spend that time learning how to manage their mortgage as part of their financial plan, and decide whether to build equity in a home, or the same equity outside a home. Then, when it’s time to shop the rate, simply go to a broker they can trust and say, “find me the best rate and prove it” and then spend their time on the bigger picture instead of spending all their time on what they do know, which can be delegated.

Business owners are very often guilty of this as well. “I know tires, that’s why I opened a tire store! I don’t want to learn everything the accountant knows. I hate taxes!” This is human nature, understandable and SUCH A SHAME! They will spend countless days and nights trying to grow revenue and work their fingers to the bone, and then pay little to no attention to what they pay all their business partners: the IRS, the state, workers comp, accounting, payroll, HR and others, because they aren’t comfortable with the subject matter. We understand, but we also BEG that you change your behavior. We can help home owners and business owners learn in small bites the things they should be paying attention to, instead of what they are currently wasting time on.

Many times business owners have come into our office and with our help have found that they were doing things incorrectly regarding their bookkeeping and taxes. Occasionally, the errors add to the tax burdens that they have been under-reporting. That never feels good, but it is always better to fix those issues prior to any audit. Often, errors discovered “pre-audit” can be fixed by simply amending the return, and no IRS issues follow, and everyone just moves on. But quite often, the errors made were not in their own favor. In those case, we help them file amended returns that net them large additional refunds for up to three years back, and that always feels great!

So, how do these mistakes happen? First, let us tell you a story. A young girl was watching her mother bake a ham for a family gathering and noticed her mom cutting off the ends before placing it in the oven. “Mom, why do you cut the ends off before baking the ham?” she asked. “Hmmm…I think it helps soak up the juices while it’s baking. I’m actually not sure, though. That’s just the way your grandma always did it, so I’ve just always cut them off. Why don’t you call grandma and ask her?”

So, the little girl phoned her grandmother and asked “Grandma, mom is making a ham and she cut off the ends before placing it in the oven. She said that it’s probably to help soak up the juices but wasn’t sure. She said you’d know because she learned how to cook from you.” “That’s true. I do cut off the ends of the ham before baking. But I’m actually not sure why either. I learned how to cook from my mom. You should ask her.”

So, the inquisitive little girl called her great grandmother and asked “Great grandma, mom and grandma said they learned how to cook a ham from watching you. Do you cut off the ends of the ham to help it soak up the juices?” The great grandmother chuckled. “Oh, no sweetie. I just never had a pan big enough to hold a whole ham, so I always had to cut off the ends to make it fit.”

The allegory of the ham is not new, and has been told numerous different ways, but it is a great example of why accounting errors happen. Many businesses are purchased and the accounting system is inherited, but not reconfirmed as valid. In other situations, such as a small mom and pop business, neither owner is an accountant or even a competent bookkeeper, so they simply did their best, and as they grew and assigned the work to the bookkeepers they hired, the systems were never questioned. How it happens is not really important. It happens, A LOT!

If you’re a business owner, don’t be afraid of an examination of your books by a proactive tax planning office. The majority of the time the errors that were favoring the IRS are corrected, amended returns are filed and overpaid money is recaptured. And, NO, getting a refund for an amended return does NOT put you in harm’s way, put you on a “watch list” or in any way add new issues, so don’t be afraid to ask the IRS for overpaid money back!

When people are contemplating selling an asset like a house, an investment property, stock or a business asset, it’s usually to make a profit or to raise cash. Sometimes, a house is sold in order to buy bigger (or smaller), to move to a different town to take a new job. In the case of stocks, it might be for the taking of profits, stopping further loses, or again to raise cash. 

One common thread among all of these decisions is that people generally think about them for some time before they act, as usually these are among the largest assets they have. What we see often in the tax planning world is that people sell the asset, and then AFTER they have cash in hand, they call their advisor or accountant and ask, “Is there some way I can avoid paying tax on the sale that’s already made?”.  At that point the response is often, “The sale has happened? No, we can’t help you. You’re going to pay some extra taxes.”

The fact is that there are many tools that can be utilized to reduce, delay and in some cases completely eliminate taxes on all these kinds of sales, but the vast majority of those tools that tax planners can use to help depend on a time line.

For example, before you sign an agreement with a real estate agent and list your house for sale, you have all the planning options that the tax code allows available. After you sign that document, you lose an entire category of planning techniques. So eight planning options might be reduced to only four with that signature. Then, at the closing of the sale of the property, if a qualified Intermediary is not used to hold the funds, you may lose the ability to do 1031 exchanges in various forms.

The list of planning options gets smaller and smaller until, by the time the client calls the accountant and asks, “Can you help?”, the question becomes, “How long ago did you sell it?” If the answer is “five months ago” then there is one planning option left. If the answer is “seven months ago”, the answer is, “Unfortunately, no, there are now no planning options left.”

So, the moral of the story is, if you are thinking about selling an asset, before you take any action, sit down with a tax planner FIRST! This will allow you to consider all the options available for mitigating some or all of the tax consequences of the sale. Every step you take in a sale process without planning first takes away more options!

Tax policy and rates have always been fluid, much more so than most people realize, as they only focus on it for short periods one time a year. You also don’t see many high school or college classes on the history of taxes and tax planning, unless you’re in accounting school.

Like a distant relative you see at an occasional wedding, you forget most of the prior experiences and conversations and simply repeat them as an act of convenience. It’s the lack of personal taxation understanding and the continuous ebbs and flows that allow the tax authorities to keep things the same just long enough to let people form habits, then change the tax rules to penalize the habits created. For example, people might say “I’m getting a home equity line of credit to make some home improvements and the interest is tax deductible” with the majority of people and lenders talking about that as a benefit, then the rule change that doubled the standard deduction left almost everyone NOT getting any tax benefit from the interest paid on their HELOC.

With the economy in a seemingly constant state of flux, the government will change tax policy again and again, and likely in ways where at least some old habits will become self destructive from a taxation point of view.   

So, what’s the point? What can you do about it? More than ever, working with a tax planner now to create a flexible tax plan will be critical. The left lane runs with the herd (headed to the slaughter house in a hurry as they think they’re headed to a hay drop). The right lane will hang back and walk calmly away from the herd. Live long and happy on the range. Find a tax planner now!

Many estate plans were built around the old “stretch IRA” rules that allowed beneficiaries to take withdrawals over their lifetimes. However, under the SECURE Act, most non-spouse beneficiaries must now withdraw the entire balance of an inherited IRA within 10 years of the original owner’s death.

While the 10% early withdrawal penalty does not apply to inherited IRA distributions, the withdrawals are still taxed as ordinary income. For many beneficiaries—especially children, partners, or other non-spouse heirs—this can mean taking large taxable distributions during their highest earning years.

In some cases, beneficiaries may also be required to take annual distributions during years one through nine if the original owner had already begun required minimum distributions (RMDs). Either way, the account must generally be fully emptied by the end of year ten.

A Strategy to Consider: Charitable Remainder Trusts (CRTs)

One planning strategy that may help address this issue is naming a Charitable Remainder Trust (CRT) as the beneficiary of the IRA instead of naming an individual directly.

When structured properly:

• The IRA proceeds pass to the CRT at death
• CRTs are generally exempt from income tax when receiving the IRA assets
• The trust then pays income to designated beneficiaries over time

Because the IRA distributes to the trust rather than directly to an individual, the 10-year payout rule does not dictate the timing of distributions to the beneficiary.

Example

Imagine John, a physician earning $300,000 per year, and his partner Ted, an attorney with similar income. Each has about $1 million in retirement accounts and plans to retire in about 10 years.

If John leaves his IRA directly to Ted, Ted must withdraw the account within 10 years—potentially adding large amounts of taxable income during his peak earning years.

If instead the IRA names a properly designed Net Income with Makeup Charitable Remainder Unitrust (NIMCRUT) as the beneficiary, the IRA proceeds pass to the trust. The trust can then limit distributions during Ted’s high-income working years and potentially distribute more income later when he retires and may be in a lower tax bracket.

The Trade-Off

CRTs do require a charitable component. At least 10% of the trust’s initial value must ultimately pass to charity. For individuals who are charitably inclined, this structure can allow them to:

• Provide long-term income to beneficiaries
• Potentially reduce the tax impact of inherited retirement accounts
• Leave a meaningful charitable legacy

The Bottom Line

The SECURE Act dramatically changed how inherited IRAs work for most non-spouse beneficiaries. If the loss of the traditional “stretch IRA” affects your estate planning goals, charitable remainder trusts may provide a potential workaround worth exploring. As always, these strategies require careful planning and should be discussed with qualified tax and estate planning professionals.