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The Need for Tax Planning


February 27, 2017

Written by Rick Huff & Justin Victor

Why is tax planning so important? Because the rules seem to change every year, and even if you have successfully filed your taxes in the past, it’s hard to know what the future will bring. The changes may benefit you, but despite what you may hear, those changes usually push the tax code towards greater complexity rather than making them simpler. The requirements of the American Taxpayer Relief Act of 2012 as well as the tax provisions of The Patient Protection and Affordable Care Act have affected a great many ordinary taxpayers.

Now, President Trump is proposing some major changes to the tax code, including reducing the number of tax brackets from seven to three, getting rid of the alternative minimum tax and the loss of Head of Household status for single parents. It’s clear that no matter what changes President Trump is able to push through, the importance of tax planning for an individual filer is greater than ever.

What Are the Main Areas of Concern in Tax Planning?

Until the proposed Trump changes take effect — if they do — filers must consider five areas of income taxation in the tax code:

  • Regular income tax
  • The 3.8 percent surtax provisions
  • The alternative minimum tax
  • The 39.6 percent tax bracket
  • Increased capital gains tax when exceeding certain thresholds

It’s possible the Trump plan will wipe out or radically change all of these, or Congress may block or change some parts of the plan. But until that happens, you need to plan your taxes according to the existing system.

What Are Some Tax Planning Strategies to Consider?

Some of the most important strategies for effective tax planning in a post-Trump America include:

  • Maxing out your itemized deductions now — before the Trump Plan to cap them at $100,000 potentially takes effect in 2018
  • Year-by-year tax bracket management
  • Contributing the appropriate amounts to 401k plans
  • Contributing the appropriate amounts to either Roth IRAs or Traditional IRAs
  • Utilizing HSA (High Deductible Savings Accounts) when they are available to you
  • Writing off your investment management fee
  • Utilizing a charitable gift fund to facilitate the transfer of highly appreciated assets

However, now when rebalancing, it is vital to take special care to realize gains and losses in ways that will benefit the taxpayer, or at least minimize the damage incurred. Accomplishing these goals while simultaneously improving the quality of the investment portfolio is indeed challenging.

Now let’s throw into the pot some additional possibilities. Liquidation events occasionally occur, such as the sale of a business, large asset or stock sales. Let’s also include the vesting of stock options and restricted stock, and you can see why some CPAs are contemplating early retirement.

To maintain financial health, individuals also need to integrate this already complex tax planning with the management of investments. Shrewd management always requires properly allocating investment assets among tax-deferred, tax-free and taxable accounts.

As comprehensive wealth managers, we have always integrated tax management into your overall wealth management plan. We develop long-term approaches that either avoid, decrease or help smooth out income which can trigger these additional taxes. This will be hugely necessary in order to manage the rapidly changing tax environment we can expect in 2017 and beyond.

How Can I Benefit From Tax Planning?

Bottom line, you need to integrate tax management within all areas of your financial life. Remember the old saying, “It is not how much you make, it is how much you keep.”

At HSC Wealth Advisors — based in Lynchburg, VA — we’re uniquely qualified to integrate tax management into your overall wealth management plan. Contact our team Certified Financial Planners for further assistance.
Movie quote quiz: From which movie did we adapt the following quote?

You want me to integrate tax management, you need me to integrate tax management.

We use words like defer, capital gain and tax loss.

We use these words as the backbone of a life spent helping clients.

Think you know the answer?

Be the first one to contact me at rick@hscwa.com and win a free gift card to Starbucks.

Updated on 2/27/2017

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