Episode #1: Tax Planning 101

June 5, 2018

“RETIRE WITH INTEGRITY” PODCAST

The Principle:

Taxes are one of life’s inescapable truths. While you can’t get away from paying Uncle Sam, there are ways to minimize your tax burden. Discover practical strategies to alleviate the stress you feel every April.

Honest Takes:

[00:29] – Taxes Are Confusing.

  • Most folks simply don’t understand the tax code, and why should they? It’s an encyclopedia of jargon. Only five to ten percent of the clients we see are knowledgeable on the subject matter. However, you shouldn’t forsake your attempt to save on taxes simply because you find the system to be confusing.

[1:07] – Bargain For Business Owners.

  • Business owners could stand to benefit from recent changes to the tax code. You should look for ways to plan ahead and save. To start, you can defer your income. If you know you’re bringing in more revenue this year than next, you can defer your income to alleviate this year’s tax bill. This could put you in a lower tax bracket. Of course, you’re also allowed to employ your children. Employing them at the standard deduction will also allow you to pay less in taxes.

[2:17] – Tax Planning Versus Tax Preparation.

  • We can develop a tax plan. It functions as a blueprint to guide your CPA. However, your CPA might not recognize or immediately adapt these tax strategies. That’s because your CPA doesn’t typically focus on tax planning. Their role is simply to help you crunch the numbers and file your taxes. That’s what we call tax preparation.
  • Tax planning is a much more involved process that examines how your investments and income will affect what you owe to the government months or years from now. That’s not to say your CPA is performing poorly. It’s simply that tax planning isn’t a part of their role. They examine your current reality. Your advisor should be working with you to find ways to save in the future.

[6:55] – Is It Better To Save Now Or Later?

  • There are different types of retirement accounts. Some are tax-deferred. Others require you to pay your taxes up front but allow you to keep all of your future gains. Typically, you want to pay your taxes now rather than later. We’re in a period of historically low tax rates, meaning they could rise in the future. It’s also important to consider how your investments will grow. Paying the tax on your initial investment is usually much cheaper than paying on your gains that hopefully will have accumulated into a hefty retirement portfolio. Of course, there are exceptions.
  • If you’re about to retire, and you’ve been saving money outside of your 401k, it’s possible you could be investing in taxable accounts. Especially if you haven’t accumulated many assets, you could save by putting them into a tax-deferred account. The key is to determine how much income you’ll have in retirement. Doing so will show you what tax bracket you’ll belong to and allow you to start planning appropriately. Just be sure to work with an advisor who specializes in tax planning.

Today’s Truth:

Other Virtues:

The host: Brian Bowen – Contact

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