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.

It’s human nature, of course. We complain about our weight while in the line at the ice-cream stand. We complain about being tired, then stay up late playing the latest game on our smart devices. Humans are funny and contradictory animals.

Have you ever noticed that when you’re in a conversation, people are quick to complain about their taxes? Many people who complain about their tax bill are actually paying very little compared to most folks. However, some people pay a lot of unintended or surprise taxes. An example we see a great deal are self-employed folks. They will tell us “I pay too much in federal or state income taxes,” but on review of their 1040, they actually paid no federal or state income tax at all. The tax they’re actually paying is self-employment tax. Most lump them together and treat them as the same animal, but they are truly two different things.  

By incorporating, the business can avoid all self-employment taxes. Even after doing formal payroll and paying FICA and FUTA through payroll, they can still often pay far less in “self-employment tax”, since corporations can loan money to owners, pay dividends and use other structures that do not generate W-2 wages. Why don’t more self-employed incorporate? Often, somebody gave them some free advice that’s limited to a smaller scope of understanding, or they just aren’t qualified to give advice but still do anyway.

Another mistake we see a lot are wage earners who perceive that they are paying a lot in tax, and they are contributing to a 401k or other plan at work.  Saving for retirement is good, and taking advantage of employer matching money is great. However, many of those folks, upon closer examination, because of having kids, childcare and healthcare expenses, dependent parent expenses, spousal business loses and on and on, are actually in a low tax bracket, but are using a PRE-TAX 401(k)!   

Let’s state that another way. They are paying an effective rate of 6% income tax now, but putting money in a 401(k) to avoid paying some of that 6%, so that in retirement they can pay the tax, which could be 20% or more! Should they not invest? Not take free employer matching dollars? Of course, not! In this case, they should simply request to have the employer offer a Roth 401(k) and contribute post-tax money. They can receive the same free employer match money, but pay the 6% income tax now, then in retirement take out all the money and all the growth on that money tax free!

These are just two examples of tax savings opportunities we have observed, but there are a great deal more we could discuss here. Instead, we will simply urge everyone: Eat the ice-cream, play the latest app after bedtime…you’ll survive.

But get to a tax planner soon to work on your tax issues, as without enough retirement saved the correct way, and with Social Security basically already insolvent, you might not survive that! At least if you like living indoors.

Have you ever had a “light bulb” moment?  I have been driving for many years. I’ve driven at least a million miles and I own a few cars (I collect certain types), and when driving my spouse’s car or one from the collection that I haven’t driven in a while, inevitably it’s time to gas up. I pull up to a pump and get out and realize that the gas cap is on the other side, back up the car, turn it around with a sigh and fill it up. Then this year the “light bulb” moment. While trying to figure out the dashboard “iPhone” charger fuse location, I happened to be looking at the diagram of the fuel gauge in the manual from the glove box and I see “On most cars and trucks the fuel symbol appears on the left or right side of the fuel gauge to indicate the location of the fill cap on the automobile.” I ran to the barn and looked at the Jag, the Caddy, the GMC….I’ll be darned! LIGHT BULB MOMENT AFTER ALL THESE YEARS! Homer Simpson`s got nothing on me! People often have simple truths right in front of them but don’t always “connect the dots” until they have their “light bulb” moment. Here is your LIGHT BULB moment of the week!

Tax Planning using simple and straight forward processes can save you thousands of dollars if you simply care about taking the time to do the exercise.

When filing their returns each year, people often have an “angst” about what their tax outcome will be. Some even lose sleep over it! Those same people will then go to a tax preparation service like an H&R Block or a Jackson Hewitt and have the return prepared and then suffer through the end result of no planning. There has to be a better way, right? There is!

Tax planners are all around and help people look for honest and often overlooked tax deductions that many people don’t think about. Just as an example; last week in a tax planning session we uncovered that one client who was taking care of her mother could have been claiming almost $60,000 of her mother’s medical expenses for home care on her own personal return, as her mother had given her, “as a gift” her inheritance in advance, due to her terminal health. The daughter, although the legal owner of the accounts, was mentally treating the medical payments as coming from “her mother’s money” and not including them on her tax return as medical expense deductions on Schedule A. A tax planning session caught the error and it saved her thousands of dollars. YOU WANT TAX PLANNING, not just preparation!

Take two years’ prior returns and your current documents and go to a tax planning firm, CPA or EA, or a financial planner (we find many financial planners have a better tax planning process than many CPA firms, by the way).  Have them review the prior years and look for anything that might have been missed by a “go fast, crank`em out, next, next, next” type of service. Ask them to put any observations in writing. The good ones will also give you a list of behavior changes that you can decide to follow going forward to further plan better tax outcomes for future years as well. You could keep feeling and/or acting like you’re not in control of your tax outcome. Or you can decide to break a “not so good habit” and instead adopt a new one.

The light bulb is yours to turn on or leave off. Do you prefer being in the dark or seeing the light when it comes to your money?

Don’t let your stockbroker off the hook when it comes to tax planning. Many people work with brokers when they buy and sell stocks. Many people now, because of the internet, also have become their own stockbrokers, doing their own research and trading on various platforms. Whether you use a professional or do your trades yourself, you still need to hold your stockbroker accountable. What do I mean? If a broker is helping you buy and sell, they had to take a Series license of some kind. Sometimes, an RIA (Registered Investment Advisor) has taken a Series 65 exam. If it’s a representative of a broker/dealer, perhaps they’ve taken a Series 6 or a Series 7 exam. There are other possibilities, but the point is, these exams are difficult. They take a lot of learning, and much of that learning is about taxation.  

No stockbroker that’s licensed out there in the world can ignore taxes, and then blame a lack of education. To get the very license they hold to help you trade, they had to know more than the basics. Also, the organizations themselves, registered investment advisory firms, broker/dealers, and other organizations that buy and sell stocks, have compliance requirements that now demand a fairly high level of fiduciary information, separate from behaving as fiduciaries — that’s another topic for another blog sometime — and the questioning includes liquidity, tax brackets, and other critical items about you that they must know before they make recommendations.  

On the professional side of the house, if you hear something like “Well, people pay taxes” or “Well, don’t let the tax tail wag the dog,” you’re talking to someone that is unconcerned, but not unaware. They don’t want to deal with the topic, or they have too tight a constraint from their compliance department or there is some other reason.

For whatever reason, in our humble opinion, this makes them perhaps dangerous to be dealing with. Whether it’s because of a lack of knowledge or lack of caring, either way, that’s no excuse. If their hands are being tied by their compliance systems above them, then those are dangerous compliance systems if they don’t allow integration of tax information when you trade, buy, sell or acquire securities. Taxation can be an important determinant in whether you win or lose. That’s the professional side. In the last few years especially, many people skip using a professional and do it themselves. Although you have an excuse for the lack of understanding of your tax side since you are not forced to take an exam, you probably should be more informed.  

Although I have met many stock traders that do as good a job as the average broker, abilities vary wildly from person to person. Unfortunately, most have a linear view of their success. “I’ve turned my $100,000 into $120,000.  I’m great. I made 20%.” With the portfolio still together inside a qualified or non-qualified account, they haven’t yet actually made anything, because they haven’t sold those securities, and that value could be less in a matter of moments. The markets can be volatile, as we have learned (often the hard way) throughout history. Their account might be up today, but without action, may be down tomorrow, resulting in no real gain. However, if they do take action while the account is up, do they know what the tax consequences will be? Too often, that answer is no. They made 20% after solidifying their gain, then don’t realize what it has done to them until they file their taxes the following year. Often, that event will cost them more than just capital gains tax.

There are many tiers and secondary actions that take place in taxation. For instance, if you trade stocks and don’t hold them for at least a year, those profits are taxed as ordinary income. You may end up paying 35% federal tax, plus 6% or 7% state income tax. Since you as your own trader are not forced to take an exam, you don’t have to know these things. But someone should. Nobody, you or a broker, should truly be allowed to manage your stock portfolio without a basic course in taxation under your belt. Go to H&R Block, take the 10-week course. Pay special attention to capital gains. If you’re going to be a stock trader, understand the difference between short-term and long-term gains and losses, carry forward losses, the basic terminology of keeping your winnings or sharing your winnings with Uncle Sam. Or taking advantage of losses by getting tax breaks on them down the road. You should know the topic.

If you use a broker and she says “Don’t let the tax tail wag the dog,” then you need to use a different broker. The topic should be an open, honest discussion where they demonstrate that they care, and they have resources to find answers, if they don’t actually do it themselves. Not doing it themselves is fine, but they can’t ignore the subject altogether. They need to be able to help you learn what you need to know, even if it’s not the favorite part of their job. It’s still well within what they learned in order to assist you, and they should feel responsible. But what if you love your broker, he doesn’t want to engage in tax planning, and you don’t want to learn it either? Then engage a tax planner. They are all around you. They are often also licensed stockbrokers. Perhaps a better choice for you, but nonetheless, you could have one stockbroker that does your trading and another that you hire just to do the tax planning. The cost you would incur to hire an external tax planner will be smaller than the tax bill for getting it all wrong. Know what you’re doing. Don’t let your stockbroker off the hook, even if it’s you.

Many of our clients are business owners and we often have conversations with them in and around the value of their business. It’s easy to pin a value number on a business based on emotion; after all if you have built a business from scratch or bought somebody else’s business and made it your own, it becomes your baby. Of course, family is worth more to you than anything on earth, but your business ends up coming in a close second. But your emotional value doesn’t have any bearing on the actual value, and when dealing with banks, insurance companies, and the various other people that help your business grow and operate, they often need a number based on a formula.

Sometimes it’s quite a surprise when we do have business evaluations, and find that it’s actually worth more than a business owner imagines. “Can’t see the forest through the trees.” Business owners are so busy operating and growing their business that they don’t realize what it’s really worth, or how big it has become.

Often though, business owners are unpleasantly surprised to learn that because of certain factors, a business is worth less, which causes a problem with financing, insurance, and other key issues. But when they find a business is worth less, they often receive information as to what changes would need to be made for it to increase in value.

So what’s our point? Well, we’re proud to announce that because of the partnerships with our national accountant offices and the new advances in “big data,” business evaluations are much easier and much less expensive to obtain than ever before. When businesses in the past looked to their accountants for a valuation, the answer was often a commitment of quite a bit of time answering a great deal of questions, which is hard for a business owner to give up, even harder to give up than their capital. Then they wait anywhere from eight to 16 weeks for the data to be compiled, and then the bill for all that time and effort could be $5,000, $6,000, or even $10,000, often resulting in a business owner that would really like to have an accurate evaluation being unable to do so.

Tax planners usually have partnerships with business valuation services that can do them in 7-10 days and for +/- $2,500, and if you’re nervous about how to plan for your business that you might want to sell, expand, or maybe even close, a business valuation is the starting line of all those activities.

The answer to that might surprise you. Because, for the most part, the answer is yes.  However, sometimes they are only fair if you know how to “play the game”. Most people think only the wealthy can avoid paying income tax because they know how to play the game. Well, at a much lower level, everybody knows some of the tricks to “playing the game”. For instance, you might be contributing to your 401(k) at work. Well, you’re playing the game. However, you might not know that even though you’re contributing everything you can to your 401(k) at work, you’re still allowed to open an additional private IRA, and take another several thousand dollars off of your taxable income. The trick is “knowing the rest of the rules to play the whole game”.

Or, you might know that you can deduct a home office for your small business. Many people use the simplified method and take the IRS’s flat rate per square foot. That’s playing the game. But what you may not know is you don’t have to use the simplified method. You can do a long form 8829 Home Office Deduction, and take a prorated portion of your mortgage bill, property taxes, utilities, cell phone, internet, the kid who mows your lawn, the guy who plows your driveway, and so on, and get a much larger deduction. Why doesn’t everyone do that? Because it takes the tax preparer an extra 10 minutes, and their attitude, for the most part, is next, next, next, let’s get it done fast so I can get paid by the client. This information is made available to every tax preparation firm by the IRS, by software manufacturers, and by outside education third parties like the AICPA. They just have to take the time to want to be great at their work, instead of just okay.

Are taxes fair? Yes, if you learn to play the game the right way, there are plenty of tax reduction opportunities and a fair tax result can be had. But, if you only play half the game, you only get half the fairness. How do you learn to play the whole game without becoming a tax nerd and spending 40 hours in classes? Quite frankly, the IRS does not hide the special rules to play the game. This is all public information. The problem is that the average person doesn’t have the time or interest in learning all the rules. So, what do you do? Well, you don’t go to a tax preparer, you go to a tax planner. Tax planners, often financial advisors, CPAs with certain designations, even attorneys, have taken the time to learn how to play the whole game on behalf of their clients. Seek out a tax planner. Play the whole game and you can achieve a fair tax outcome.

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?

At this time of year many people who were getting a refund have already filed their tax return. It leaves the remaining majority of folks who, despite having withholdings, are still going to owe additional tax. We talk a great deal about tax planning and changing behaviors to achieve better outcomes in the future, but many are faced right now with a tax bill for last year.

So, what can be done? Anything? The answer is YES! It’s actually simple and easy for most folks to substantially reduce the tax liability they are facing by opening a prior year IRA! It is one of the very few ways the IRS allows you to retroactively affect your taxes. What if you don’t have the cash for an IRA? You can turn assets you already own into a prior year IRA with some simple paperwork, with nothing needing to be bought or sold.

Let’s give you an example: Kevin and Cathy are facing a $3,900 tax bill even after having $12,000 withheld from their W-2s. They have a daughter in college, so there is no cash in the bank to put in an IRA, or to pay the $3,900 tax bill. They do, however, have a brokerage account with E*TRADE with a few stocks they have purchased over the years. They can simply do an online IRA application (make sure it’s an application for the previous year, not the current year). When they have account numbers, they can then transfer “in kind” any of the stocks from the regular brokerage account to the IRA without selling them. In a sense, they are taking them from the left pants pocket and putting them in the right pants pocket. The outcome…ta-dah, a $13,000 IRA deduction, and they still own the same stocks!

One thing to consider is that they have now locked up that stock until age 59.5. Another consideration is that stocks are subject to a capital gains tax, which is lower than ordinary income. Suitability of IRAs vs non-qualified stocks is not the point of this post. Anybody making any decisions about finance should seek professional advice, which IS the point.

If your tax preparer just says ,”It’s bad news” and doesn’t offer at least some solutions, then you should go to a tax planner and work through your options. But just because there is no cash in your checkbook, it doesn’t necessarily mean that nothing can be done.

There are many ways a tax return can be done that are all OK with the IRS, but only one of those ways nets the largest refund! People need to understand this across America, and we talk about tax planning constantly. We blog, tweet, post, email and on and on, yet we as an industry are not even getting 10% of the public to take on tax planning! The clients who do are often thrilled at the outcomes, and yet it’s just hard to get people to want to spend half the time that they spend planning their vacations on planning their own tax outcomes, even though larger refunds would pay for those vacations!

Tax planning offices often don’t look like a franchise such as H&R Block or Liberty Tax. Those “tax stores” often spend a great deal of time and effort on locations of convenience, fast or same day service and focus on people expecting refunds. They do all types of tax returns, as far as we know, but the focus of their services is obvious.

Planning offices, on the other hand, take a few days to do returns, have CPAs and EAs doing the work and have a second set of eyes review the process. They often do not loan tax clients the IRS refund for a fee. In fact, they are most often working with taxpayers who are not necessarily getting a refund. Complex returns for business owners, landlords and corporations can’t be done in one “walk in the door and walk out with a return” process. Even though they take more time, they also are often less expensive than an “instant service in a high traffic area” model.

If you want a same day return, fast service and are willing to take a short term loan to get some of your refund right away, then just look for a foam finger, green face paint or the other “mall header” based systems, as they are all around you! However, if you want CPAs or EAs doing your work, and then to have the work double checked by a second qualified set of eyes, and you want it cheaper than most national walk in services for a more complex type return, look off the beaten path for the tax preparation and planning services. Wait a few days or even a couple weeks for the work, but reap the benefits!!

There are many ways a tax return can be done that are all OK with the IRS, but only one of those ways nets the largest refund! People need to understand this across America, and we talk about tax planning constantly. We blog, tweet, post, email and on and on, yet we as an industry are not even getting 10% of the public to take on tax planning! The clients who do are often thrilled at the outcomes, and yet it’s just hard to get people to want to spend half the time that they spend planning their vacations on planning their own tax outcomes, even though larger refunds would pay for those vacations!

Tax planning offices often don’t look like a franchise such as H&R Block or Liberty Tax. Those “tax stores” often spend a great deal of time and effort on locations of convenience, fast or same day service and focus on people expecting refunds. They do all types of tax returns, as far as we know, but the focus of their services is obvious.

Planning offices, on the other hand, take a few days to do returns, have CPAs and EAs doing the work and have a second set of eyes review the process. They often do not loan tax clients the IRS refund for a fee. In fact, they are most often working with taxpayers who are not necessarily getting a refund. Complex returns for business owners, landlords and corporations can’t be done in one “walk in the door and walk out with a return” process. Even though they take more time, they also are often less expensive than an “instant service in a high traffic area” model.

If you want a same day return, fast service and are willing to take a short term loan to get some of your refund right away, then just look for a foam finger, green face paint or the other “mall header” based systems, as they are all around you! However, if you want CPAs or EAs doing your work, and then to have the work double checked by a second qualified set of eyes, and you want it cheaper than most national walk in services for a more complex type return, look off the beaten path for the tax preparation and planning services. Wait a few days or even a couple weeks for the work, but reap the benefits!!

As weather interrupts some parts of the country and business owners have to scramble and fill in the gaps of employees, supplies, deliveries and the like, it’s easy for them to worry about taxes later, after all, there’s “plenty of time.”

That often comes back to bite them though, sometimes hard. If they run their business as a sole proprietorship then yes, they have until mid-April to file, and until mid-October if they file an extension.  However, the majority of small businesses under pay tax estimates, if they pay them at all, and the first filing date (mid-April) is when the taxes are due, even with an extension to file. The penalties and interest are based on what’s owed and not paid by the April filing deadline, so the real trap for them is do they know what they will owe so they can send that in by April. The answer is too often NO.

If the business is an S elected Corporation or a Partnership, then they have even less time, as those filings are due March 15^th. That’s just a few weeks from now, and business owners know how a week can simply “melt away” trouble shooting this or that. If businesses have bookkeepers keeping good books every month then all they need now is their payroll package, 941s and such, and they are good to go, but again many business owners are behind in bookkeeping or have been in their own QuickBooks and made many errors that need to be corrected before taxes can be done.

The biggest problem of all is the lack of tax preparers with the talent to do business tax returns well, and if the majority of their clients wait until the last two weeks to dump their mess on them, then they simply don’t have the capacity to do all those returns in time. The business owners come flooding in just before the March pass-through entity filing deadline, and even though the accountants do their best, error rates increase. An even bigger problem, TAX PLANNING GOES OUT THE WINDOW!

If instead, that business owner connected with their preparer now, before the season starts really heating up, they could have a draft return in hand by mid-February. Now they can have a conversation with that preparer. Business Owner: “Why do I have such a big gain?” Accountant: “Well, let’s take a look. Ah, last year you had less employees and spent less on salary.” Business Owner: ”Well, what can I do to reduce my taxes?” Accountant: “We could advance the deprecation on that new machine instead of using normal deprecation, or you could fund your profit sharing plan.”

Those conversations almost never happen on March 15^th. Instead, it’s the Accountant saying “Sign here and who’s next?”, the Business Owner saying, “Oh, wow. What can I do?” and the Accountant (who has worked over 100 hours in the last seven days) says “It’s too late to do anything…NEXT!” Get started NOW and get better results, which usually means keeping more of your own money. Tax planning time for business owners is crucial!

Dear Santa, I feel like you put me on the naughty list every year. When I file my tax return you impose taxes on me that I don’t want to pay. It feels like tons of coal are being unfairly put into my very little stockings. I try to be a good person all year, so I’m not sure why you are singling me out and treating me this way.

Dear Suzie,

You are not on the naughty list. In fact, you’re not on any list at all. You’re not being watched by me or my elves, unless you are doing things you ought not be doing.

Every year I actually provide you with lots of presents, the following just to name a few:

The lowest tax rates in decades.
IRA, 401(k), 403(b) and tons of other ways to save on taxes now while building your retirement nest egg.
Roth IRAs for tax free growth.
Charitable deductions so you’re rewarded for helping those in need.
Tax credits for solar, “green” cars and so much more.

Best of all, we did not limit you to having three wise men to help you with your tax planning. There are thousands of wise men and women all around you. They’re called tax planners, and if you go see one before the end of the year you’ll be very happy when you file your tax return in April.

Thanks for the milk and cookies!

People often struggle with record keeping and are typically so busy that they are simply unaware of tools or services that have been developed that could greatly improve the recording of tax deductible expenses, mileage, etc. There are many topics we could cover here, but two that are universal.

If you are in business, you have a phone and a car. Cell phones are pretty typical for smaller companies. What we usually see is a personal cell phone bill of about $150-200 a month, and of course the business owner wants to deduct it all. When you start asking questions however, it’s almost always a family plan with the spouse and kids on it, so 80% of the cost and use is personal and not deductible.

What you could try and likely have it be OK with the IRS is to only deduct the one line charge from the bill and perhaps the taxes for the group, but even that might be stretching it. How do you fix that? Two things can help. One, when you open the account, do it in the name of the company and not yourself personally, and have the bill sent to the company. This way, your costs and the taxes are at least potentially defend-able. Then, hire your family. Just to deduct the phone bill? No, really hire your kids and hire your spouse. It doesn’t need to be full time, but part of justifiable benefits as a policy, noted in your company handbook, could be a phone.

As a sole proprietor, there are many other potential benefits, such as paying wages to children without FICA or FUTA taxes being deducted. Also, those same kids can earn up to the current single filer standard deduction each year and not pay federal income tax under the new code. Then, perhaps half or even more of their phone bill could be legit! You have legal deductions and you save employer taxes as a bonus, all while keeping more of the money that you work so hard for “in the family.”

As for the car, whether you buy it personally and have your business write you reimbursement checks, or own it in the business and write reimbursement checks to the company for personal use, the issue is in parity with the phone. What people can do to help though is to not estimate! What we have seen over and over is people who haven’t kept records of the business versus personal mileage who are then forced to estimate at tax time. Since they have no proper log to help defend the deduction if they are audited, they typically estimate less business miles then they have actually driven out of fear. And at 70 cents a mile, that can be a LARGE COSTLY mistake.

How do you fix that? Simply join the modern world and get one of numerous apps that track every start and stop, as long as you have your phone with you (and who doesn’t). Quick Books has a mileage app built right into the program. If you’re not on Quick Books, Mile IQ and similar apps are available and very easy to use. Just click the app to look at all your trips and swipe left or right with your thumb for business or personal! It couldn’t be easier!

It just takes a few moments to put a process and plan in place so you can enjoy the deductions. And, more importantly, you will be able to defend them if you are audited.

When people save for retirement they almost automatically use accounts that avoid tax now. IRAs, 401(k)s, 403(b)s, 457s, all pretax retirement savings plans. Certainly, long term savings uninterrupted by withdrawals and the effect of compounding interest on interest earned is unarguably valuable, but doing that in pretax accounts is NOT the only way to have that happen! Non-qualified annuities and Roth IRAs allow the same mechanics of compounding to happen, and in retirement both can be as valuable depending on the circumstances and actions of the retiree.

Annuities are underappreciated as a tax planning tool, because of the way earnings are treated as ordinary income upon withdrawal. However if annuitized at retirement (an option the advisors that distribute them don’t often value) instead of withdrawing from them, they can offer a dynamic change to the tax profile by way of “exclusion ratio” on each payment, which can work out as a great tax planning tool.

Roth IRAs are a class of IRA that allow for tax free growth and tax free withdrawals, and many misunderstand how they can be funded. People who cannot make a contribution because of earning too much income can still convert IRA, 401(k) and other pretax accounts to a Roth IRA. Making a contribution is different than making a conversion into one. It sounds like splitting hairs but it is not. So, anyone can have a Roth IRA, it just takes several steps for some people and less for others. As long as you have a good tax planner, it can be done!

These are only a few examples, but as with most things there are many other options available. But the moral of the story is: Don’t automatically save in pretax accounts. Look at the post tax options as well and sit down with a tax planner as your Sherpa to help you accomplish your retirement goals!

From our family to yours, have a safe and happy holiday weekend!

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.

An often overlooked tax savings opportunity comes from not fully understanding how you can use your cars as a deduction on your tax return. It is very common for people who have a Schedule C sole proprietor type business to claim their mileage on automobiles. But the privilege of using personal deductions on a tax return is not limited to someone who is filing a Schedule C.  For instance, a landlord might own three apartment buildings and file a schedule E on his personal tax return and not feel like he is “self-employed” as he has a full-time W-2 job.

However, the use of his personal car on that schedule E is just as deductible as it is for the Schedule C sole proprietor, and honestly, who can generate any passive income without having some expenses? If you have an online eBay service, you drive to the post office to mail your packages. If you are a landlord, you drive to the hardware store to get nuts and bolts, and of course, drive to the properties when necessary. There’s almost always an automobile component to everything in our lives.

The topic of whether to actually claim mileage versus actual expenses is often overlooked as well. Many people who put in mileage were simply given that option by a tax preparer initially when they started generating income that included business use of a vehicle. The preparer didn’t think about the choice of actual expenses versus mileage.

What else do you need to know?

The IRS, when you first put a car into service on a tax return, gives you the option of using actual expenses or mileage, so what is the mileage deduction? It’s basically “actual expenses EZ”. Like many parts of the tax code, the IRS gives you the simple form method option of tracking automobile expenses. You could instead keep track of the tires, mufflers and other repairs, the cost of insurance, the tags, the upkeep, etc., and deduct those expenses at a certain ratio. But many people at tax time have not kept the receipts for those various expenses, plus it is “bookkeeping intensive,” so the IRS eventually came up with a methodology called “mileage expense” where they are giving people a predetermined formula. This year that expense amounts to $0.70 a mile for business deductions, which represents what the average person would spend on gas, tires, oil, repairs, maintenance, if they drive their car a certain number of miles.  In other words, $7,000 is estimated to be what you would have spent on gas, oil, mufflers, tires, etc. after driving 10,000 miles.

Is it always smart to use mileage? Not necessarily. Often, people with small businesses don’t really have to go many miles, but they have older cars that require more repairs and maintenance than a brand new car. For instance, a landlord lives six miles from two apartment buildings and nine miles from the hardware store. His average week would be 35 miles round trip to the properties. At $0.70 a mile, it’s a very small deduction against his taxes. Let’s assume he owns a nine-year-old vehicle that’s starting to wear out. When he puts that vehicle into service on his 1040, instead of using miles he could claim actual expenses.

He spends money on mufflers, tires and a transmission repair for that vehicle, for example, totaling $3,000, a portion of which is deductible for the landlord business. In this case, he would have three times the tax deduction by using actual expenses over miles. However, if the same landlord leases a brand new vehicle that’s under warranty, which covers oil changes, maintenance, and all other expenses for the next three years, then he should claim miles because, under the actual expenses model, he would have zero dollars expended. A deduction of $0.70 per mile for 30 or 40 miles a week is better than zero.

When you first put a car into service, trade cars, buy a new car, start a new business, you actually have to stop and think about how you’re going to use that vehicle, how the deductions work and whether you should use actual expenses or mileage. Once you’ve made the determination, however, if your circumstances change, you cannot change the formula with the IRS. They require that you continue to use actual mileage or actual expenses (whichever you used the first year) for the entire time that the vehicle is used in service for the business.

What If your situation changes?

Let’s assume that same landlord living a few miles away from an apartment building with a brand new car just started a common carrier business and is going to drive hundreds and hundreds of miles a week.  How do you fix the problem? You could trade cars with your spouse. Take the car out of service from your landlord business and put it in service under the new business, and then you can change from actual expenses to mileage or vice versa.

The point is that this takes some “strategizing.” Going to a tax planning firm and not just a tax preparation firm can help you catch little things like the mileage versus actual expenses choice, which can make a difference of hundreds, even thousands of dollars of money back on your taxes, instead of somebody just automatically using mileage because it’s all they know.

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!

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!

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!

Many people have the intention of doing a better job of “tax planning” in order to start having more favorable outcomes, but busy lives and life interruptions can leave them little time. If this is you, you’re not alone. Time flies even in normal times, but with the current stressful environment, everyone is scrambling even more, so you look at the calendar and think, “I can go see my accountant or financial advisor, or I can get my shopping done”, and the next thing you know it, it’s Thanksgiving and the end of the year is upon us.

Most advanced tax planning requires communication about concepts, takes reams of paperwork and time to submit to custodians, so it would be easy to think “well, it’s too late.” But it’s not too late if charitable giving is part of your plans now or in the near future.

Donor-Advised Funds or “DAFs” can normally be established with a one-page simple account form, requiring minimal information and with hardly any real decisions to be made. You and your spouse are the donors, your children or siblings the contingents, and you don’t even have to choose a charity to get started. You put the money in the fund and you are eligible for 100% of the tax deduction now, even if you don’t make any charitable gifts from it this year or next. A DAF allows you to lump together tax deductions in a year where you need those deductions, without the extra work of choosing the charities, cutting those checks, etc., which can all be done later.

Example:  You normally give away $5,000 a year to various charities. This year you got a surprise income from an inheritance, bonus, stock option, etc. You can put $50,000 in a DAF to neutralize the additional taxable income, but still only give $5,000 a year away from the DAF for the next ten years. You’re not giving more away than planned, just getting the deduction when you need it. Setting up a DAF is simple, easy, and almost completely time and decision free. Call your tax planner today and say, “let’s set up a DAF” and you can still easily get that done before the end of the year.