Tax Planning and Preparation

Overview

We think that every American should pay the minimum legal amount of income tax. This effectively means not only correctly reporting income and deductions, but also trying to uncover tax opportunities within the Tax Code. To do this, it’s important to look at taxes as a proactive process, not as a reporting of history. Too many CPAs have their clients bring in their data after year end, prepare the return, and send the client on their way. We think most people need input on planning their taxes before the return is done.


Roth IRA
A good example of long-range planning is the Roth IRA. A Roth IRA is a type of IRA that provides tax-free growth on income and gains for qualified withdrawals. Another feature of a Roth is that a Roth IRA is not subject to Required Minimum Distributions at age 70 ½. The Roth can serve a wide range of purposes such as saving money for a surviving spouse, to providing an income tax-free stream to children and grandchildren. A Roth can be funded by contributions or by conversion of an existing IRA or 401(k). However, there is an optimal amount for a Roth conversion, and in fact some people will not benefit from a conversion. We’ve created a series of models to look at the optimization of Roths to maximize your wealth.


Charitable Gifts
Another example is the use of charitable gifts. With a wide array of tools, charitable gifts can be used to offset Roth conversion income, eliminate capital gains, or even provide income to the donor for their life and the residual to the charity. We like charitable giving because it both benefits the charity, and provides an income tax benefit to the donor. Taking a Required Minimum Distribution from an IRA, (for an individual over 70 ½) to fund a charitable contribution for 2011 and 2012, is another example of a useful pro-active tax planning tool.


Tax Planning for Business Owners
An obvious place for tax planning is a closely held business. Business owners have a wide array of tools for tax planning, particularly in the qualified plan area. Self employed or closely held business owners can utilize qualified deferred compensation programs that can provide significant tax benefits. Other aspects include health insurance and Health Savings Accounts, as well as benefit programs that may be able to assist family members who work in the business.


All in all, proactive tax planning is good business.

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Frequently Asked Questions

How much should I convert to a Roth?
We think a variety of considerations should go into that question. The first is, “what tax bracket will the eventual recipient be in when they take distributions?” Individuals who are in high tax brackets now and low tax brackets later will probably not benefit from a Roth conversion now. Individuals with unneeded RMDs, or substantial pensions, or for whatever reason will be in a higher bracket later, can benefit. In general, we look at ‘topping off the bracket’ or converting enough to stay within the taxpayer’s current tax bracket. Other considerations include the age and income of the eventual beneficiaries, the age of the person, and the marital status. It’s a complex question and we like to model the answer.
How much do you charge to do my taxes?
For clients with $250K or more of assets under management, the basic personal return and tax planning is included as part of our comprehensive wealth management services. For clients on a retainer basis, or who want their returns prepared individually, the fee varies depending on the complexity of the return and planning services.
What is the maximum a business owner can contribute to a plan for themselves?
The range of deductible contributions is wide, from very small contributions to plans like IRAs or SEPPs to larger amounts in 401(k)-type plans. For older business owners without a lot of other employees (or other older employees), the defined benefit plan can be the 700 pound gorilla of retirement plans. For a high income business owner, a DB plan would allow contributions of upwards of $200,000 per year.

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