Tax Planning

Prudent tax planning is not necessarily about taking the highest amount of current deductions possible, but instead focuses on better structuring your finances to take advantage of the many opportunities the tax code affords families over time.

Delayed tax planning represents a leak in your financial plan. The longer you defer it, the more you have to work and save over time to make up for that leakage. That is because like most financial planning tactics (due to the power of compounding), a well-designed tax strategy can yield greater benefits the earlier you adopt them. For example, by reducing just $500 from your tax bill each year through prudent tax planning, and investing it at a 5% annual rate of return, you could have an additional $34,880 in 30 years.

Account and Investment Structures: While it is important to save as much as you can for retirement, it’s also important how you invest those savings. Good tax planning will provide advice on how much to invest with pre-tax dollars or after-tax income, which types of accounts to fund first, and with what types of vehicles. All of those decisions can make a significant difference in the amount of taxes you pay over your lifetime, which also impacts the amount you have at retirement.

Cash Flow Planning: Tax planning should also include an analysis of the types of income that you expect to receive over your lifetime: dividends, interest, annuity payments, capital gains, inheritances, and employer or government benefits. Each type has different tax planning implications, and if left unplanned, your net wealth could be diminished due to benefit claw-backs and/or substantial taxes.

Distribution Planning: Lastly, a good tax plan should take into account future generations to minimize the tax liability of the legacy you leave them. But to ensure a tax-advantage inheritance to your beneficiaries, it’s important to put appropriate plans in place now.