There are a number of things that could happen that might leave you with additional funds in one of […]
Although guarantees–in the context of personal financial planning–should be met with a healthy dose of skepticism, I have a strong hunch related to one of my favorite topics that I’m willing to put on the record: those who pay less in taxes over the course of their lives will have more money for spending on other things.
Even though I haven’t polled them individually, I’m confident my Summit colleagues would agree with that statement, and it’s why we feel that being proactive with planning, including tax planning, can help move clients closer to reaching their goals and provide greater flexibility in their overall financial situation.
Navigating income taxes is anything but straightforward, however. With more than a handful of tax laws passed and regulations released since late 2017, including the long-awaited final regulations for the SECURE Act just earlier this summer, it can be challenging to fully grasp the new sets of rules and know which ones apply to any given situation. In addition to all these changes, in just about 15 months, we’re facing the potential “sunset” of the Tax Cuts and Jobs Act, which largely became effective in 2018 and impacted the tax situation of nearly every American by reducing the tax brackets across the board to their current levels (for instance, this year’s lowest tax rate of 10% is the lowest our country has seen for that bracket since 1940)A.
Considering all these changes, and in response to the various tax proposals being shared leading up to November’s elections, we believe it’s important to look more closely at taxes today and consider how they may change in the future. We’ve been helping educate our Wealth Management clients who are wondering what they should (or shouldn’t) be doing amidst all the commotion, and factoring in those transitions happening within their personal or family lives, too. For example, completing partial Roth conversions, taking distributions from inherited IRAs, and opening Donor Advised Funds for more tax-efficient charitable giving are common strategies that have made sense for many clients in recent years. Additionally, since the IRS interest rate remains near 8% for the underpayment of taxes, proactively taking steps like paying timely quarterly estimated taxes or withholding from retirement account distributions can help avoid this unpleasant surprise.
Despite the early spring generally being described as “tax time” given the annual sprint toward the filing deadline in mid-April each year, we think there are situations when the joy of taxes can be spread year-round. While some taxpayers are often reactive to their situation and cross their fingers for a certain result when filing time rolls around, we believe a proactive approach (often initiated in Q1 or Q2 with our Wealth Management clients and refined throughout the entire calendar year) can lead to more confident decisions. We recognize that several factors affecting a given tax situation are outside our control (for example, the prevailing tax rates), but know there are levers that most clients can pull to directly influence theirs, which is why we continue to educate our Advisors – and surround them with the right tools and resources – to help clients confidently navigate their tax situation, year-by-year, in collaboration with their tax professional.
In summary, while so many things in personal finance are relative, we believe that a “good” tax result is not necessarily paying the least amount of taxes nor getting the largest refund. While one or both outcomes may make sense, we prefer to take the long view, much like we do when gauging the success of an investment portfolio. Tax planning helps our wealth management clients make consistent and more intentional decisions, ultimately moving them closer to reaching their goals and achieving better outcomes for their overall financial situation… and leave more for, you know, those other things.
IMPORTANT DISCLOSURE INFORMATION
Please remember that past performance may not be indicative of future results. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by Summit Financial Strategies, Inc. (“SFS”), or any non-investment related content, made reference to directly or indirectly in this newsletter will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful. Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion or information contained in this newsletter serves as the receipt of, or as a substitute for, personalized investment advice from SFS. To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing. SFS is neither a law firm, nor a certified public accounting firm, and no portion of this content should be construed as legal or accounting advice. A copy of SFS’s current written disclosure Brochure discussing our advisory services and fees is available upon request or at www.summitfin.com. Please Note: If you are a SFS client, please remember to contact SFS, in writing, if there are any changes in your personal/financial situation or investment objectives for the purpose of reviewing/evaluating/revising our previous recommendations and/or services, or if you would like to impose, add, or to modify any reasonable restrictions to our investment advisory services. SFS shall continue to rely on the accuracy of information that you have provided. Please Note: If you are a SFS client, please advise us if you have not been receiving account statements (at least quarterly) from the account custodian.
SOURCES
AU.S. Individual Income Tax: Tax Rates for Regular Tax: Lowest Bracket (IITTRLB) | FRED | St. Louis Fed (https://www.stlouisfed.org)
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