TAX PLANNING

 

If you were to survey CPA and tax firms, what you would generally find is that most all of them prepare tax returns and filings. That is called Tax Compliance – ensuring that clients comply with the tax laws by reporting and filing the return which demonstrates compliance. It is, by its very nature, backward looking, as it’s a report card on the past financial results. But very few take the time to do Tax Planning. It is a completely different discipline.

 

Tax Planning is forward looking and seeks to optimize one’s tax liability over his/her lifetime, and perhaps longer. Many tax professionals will identify ways to reduce taxes this year, as part of the Compliance process. That is not to be confused with tax planning. Tax Planning is a series of strategies and tactics that will utilize known information and realistic assumptions to be intentional about how much tax to pay and when, resulting in lower lifetime tax liability. Big picture – thousands, tens of thousands or in extreme cases, hundreds of thousands of dollars of tax savings. Who doesn’t want lower taxes for life!!

 

To lower your overall tax liability seems like a simple concept, and it is. Pay less tax (legally). The overall strategy of Tax Planning is fairly straightforward – to smooth out taxable income over time into the future. By lowering the peaks of income and filling the valleys of lower income periods, you can smooth out your income over time, which will absolutely result in paying less tax. Deciding on the implementation of the tactics involved in carrying out this tax strategy is what’s complex. There are so many intersections of ordinary income, tax-exempt income, capital gains, recapture gain, income limits and deduction/credit phase-outs, that it’s nearly impossible for the average taxpayer to comprehend how to put this all together to come up with the best solution. That is why most taxpayers dread the process, and want to file and put taxes behind them as quickly as possible. But that is not the way to optimize your tax bill and save precious resources.

 

Much like trying to understand all that goes into the steps of a rocket launch sequence, tax planning requires sophisticated tools and technology, used by a knowledgeable tax professional. Starting with your prior year tax return, and some basic information about your income streams, both now and in the future, we can use software to crunch some numbers and give us clues into whether you are overpaying your taxes (Ouch!) or worse, if you are headed for a tax tsunami in the future. Then we can advise you on how to…optimize your income and tax liability to help you pay less tax over your remaining lifetime. Sometimes much, much less.

 

If you would like to explore how to optimize your Tax Planning, connect below or send me an email using the contact David button, and I’ll be sure to respond promptly and see if we can help you to lower your long-term tax bill.