Efficient Tax Planning is a Year-Round Job

While many of us are so focused this time of year on getting our tax returns done and over with until 2016, year-round tax planning is something that excites us number geeks!  Taxes are something we really can’t control, right?  Not exactly.  While we can’t change the tax rates set by our government, we can work collaboratively with you and your tax professional to make sure certain financial decisions throughout the year ensure that you are being as efficient as possible with your tax situation.  Let’s take a look at a few examples:

Example #1: Ford Stock

Say you have a stock position in Ford that you purchased when the “sky was falling” at $3/share.  Now it is worth much more and you have an unrealized gain of $20,000.  You might not want to part ways with the stock because it has done so well and you don’t want to pay tax on that nice $20,000 gain.  This might make your reconsider: If your taxable income falls within the 15% marginal tax bracket, chances are you would pay very little or possibly ZERO tax on the $20,000 gain.  You could lock in some nice profit on the stock and potentially improve the overall allocation of your portfolio. 

Example #2: Roth Conversion

Let’s take a look at another real life example we see very often.  What if your income this year drops significantly?  Whether it be a job loss, retirement, job change, etc. this is something we want you to keep us in the loop on for pro-active tax planning purposes.  In this situation, a Roth IRA conversion could make a lot of sense if your income this year will fall into a lower tax bracket that you will most likely never be in again.  Paying tax at a much lower rate than you normally would and moving Traditional IRA dollars into a Roth IRA for potential future tax-free growth could be a monumental planning opportunity.   

Sharing Your Tax Returns

These are just two examples of the many factors we are looking for in your financial plan to make sure your dollars are being taxed efficiently.  You can help us do this work by providing us with your tax return early in the year.  This gives us a much better chance to fully analyze your tax situation throughout the year to see if any tax planning strategies could make sense for you and your family.  Many of our clients have now signed a disclosure form allowing us to contact their CPA or tax professional directly to obtain copies of returns and to discuss tax-planning ideas.  This saves you, as the client, the hassle of making copies or e-mailing your return to us – we are all about making your life easier! 

Nick Defenthaler, CFP® is a CERTIFIED FINANCIAL PLANNER™ at Center for Financial Planning, Inc. Nick is a member of The Center’s financial planning department and also works closely with Center clients. In addition, Nick is a frequent contributor to the firm’s Money Centered and Center Connections blogs.

This material is being provided for information purposes only and is not a complete description, nor is it a recommendation. Any opinions are those of Center for Financial Planning, Inc. and not necessarily those of Raymond James. The information has been obtained from sources considered to be reliable, but Raymond James does not guarantee that the foregoing material is accurate or complete. Raymond James does not provide tax advice. You should consult a tax professional for any tax matters. C15-004265