• Home
  • About
  • Services
  • Contact
  • Media

Value of Tax Planning

Posted December 6, 2018 by Denis Smirnov

For the past few weeks we have been busy meeting with many of our clients for year-end reviews and tax discussions. We strongly believe that proactive tax planning is a major part of Gordian Advisors’ value proposition (or working with comprehensive planners in general). It is especially true in 2018 as we work through the TCJA tax law changes (see prior post). After doing dozens of planning sessions, I wanted to summarize some of the opportunities and pitfalls that come up over and over again.

This is a pretty technical discussion, so don’t worry if you get lost in the weeds. If you are a client we have either met in person, communicated through email or internally reviewed your situation already. Do let us know if you have any questions or have thought of any other strategies that might apply to your situation. And if you are not a client, maybe you should become oneĀ  šŸ™‚

Everyone should review their tax situation at the end of each year to see if there are any planning opportunities. However, the set of available strategies largely depends on your employment status. For W-2 employees such opportunities are often limited, but do include reviewing retirement plan contributions (pre-tax and/or Roth), benefits elections, and stock option strategies. Business owners or self-employed individuals should look into the new 20% QBI deduction and a selection of retirement savings plans (i401k, SEP, Simple, PSP, etc). The real tax planning sweet spot is largely available to Retirees, particularly in the early years.

Below is a checklist that you or your advisor should go through this year, it’s not exhaustive but covers most major points.

Everyone

  • Review deductions – with higher standard deduction ($24k+ for MFJ), elimination of miscellaneous category and $10,000 SALT cap few clients will itemize in 2018.
  • Plan charitable contributions – including bunching, Donor-Advised Funds, and AZ state credits
  • Tax loss harvesting – this year it made sense for some clients where we took losses on foreign stock and [uncommonly] bond funds
  • Don’t forget about year-end mutual fund distributions in taxable accounts – these can reach 40% of value in rare cases, but the highest ones we saw for our clients were in a 10% range. It might make sense to sell such funds before the distribution, or at least don’t buy in right before it. We have contacted clients with significant impact.
  • IRA/Roth contributions – these can be made up until April 15 of next year
  • 529 contributions – Arizona offers a state tax deduction for up to $4,000 in contributions

Retirees

  • My tax-wise definition of “Golden Years” is the first few years of retirement when you no longer have wages, but before you take Social Security and RMDs. As a result you are likely in a very low tax situation which opens up some bracket top-off opportunities such as:
    • Capital gains at 0% tax – bring up your cost basis, rebalance or raise cash for future distributions
    • Roth conversions – might make sense if you are in a low tax bracket that will increase in the future
  • Double-check total marginal rate – there is a narrow area where interplay of capital gains and regular income creates a tricky triangle of 27% marginal rate. This happens when regular income at ostensible 12% pushes out capital gains from 0% to 15% thus creating 27% rate. This came up several times this year and we recommended against additional IRA distributions. Conversely, doing a QCD (see below) in that same space would lead to 27% tax reduction!
  • Medicare premiums (Part B and D) depend on your income, so reducing AGI (QCD anyone) can lead to substantial savings.
  • Social Security taxation – proportion of your retirement benefit that is taxed (from 0% to 85%) depends on your income
  • If you are over 70 1/2 make sure you take RMD for the year – nobody wants to pay 50% penalty! (all our clients are good here)
  • Related to RMD is QCD – it gets technical but basic premise is that you can send part of your required distribution directly to a charity. It reduces your income and taxes but may also favorably impact Medicare premiums. It’s “above the line” item unlike regular charitable deductions. Moreover, you can take a standard deduction and further benefit from charitable contributions. We discussed this strategy with most clients who qualify, but let us know if this sounds interesting.

Share this:

  • Facebook
  • LinkedIn
  • Twitter
  • Pocket
  • Email

Sign up to the newsletter

Categories

  • Bear Markets
  • Bonds
  • Economy
  • Education
  • Financial Planning
  • Indexing
  • Investing
  • IPO
  • Retirement
  • Taxes
  • Uncategorized
  • Valuation

Archives

  • January 2023
  • October 2022
  • September 2022
  • August 2022
  • July 2022
  • May 2022
  • April 2022
  • February 2022
  • January 2022
  • October 2021
  • September 2021
  • July 2021
  • February 2021
  • January 2021
  • November 2020
  • October 2020
  • September 2020
  • July 2020
  • June 2020
  • May 2020
  • March 2020
  • February 2020
  • January 2020
  • November 2019
  • October 2019
  • September 2019
  • July 2019
  • May 2019
  • February 2019
  • January 2019
  • December 2018
  • October 2018
  • September 2018
  • July 2018
  • June 2018
  • May 2018
  • March 2018
  • February 2018
  • January 2018
  • December 2017
  • November 2017
  • September 2017
  • August 2017
  • July 2017
  • June 2017
  • April 2017
  • March 2017
  • February 2017
  • January 2017
  • December 2016
  • November 2016
  • October 2016
  • September 2016
  • August 2016
  • June 2016
  • May 2016
  • April 2016
  • March 2016
  • February 2016
  • January 2016
  • December 2015
  • November 2015
  • October 2015
  • September 2015
  • August 2015
  • July 2015
  • June 2015
  • April 2015
  • March 2015
  • February 2015
  • January 2015
  • December 2014
  • November 2014
  • October 2014
  • September 2014
  • August 2014
  • July 2014
  • June 2014
  • May 2014
  • April 2014
  • March 2014
  • February 2014
  • January 2014
  • December 2013
  • October 2013
About
  • Background
  • Who We Are
  • The Gordian Knot
Services
  • Services
  • Planning Process
  • Investment Philosophy
Contact
  • Contact Details
  • Inquiry Form
  • Map
Media
  • Articles
  • Blog
  • Reviews
Dave
Denis
Ā 
Ā 
Ā 
Ā 

GordianĀ Advisors FinancialĀ Planner

Office: 2200 E. River Rd., Suite 109, Tucson, AZ 85718

Phone: 520-615-2779

Email: info@gordianadvisors.com

Download Form Form CRS Client Relationship Summary

Download Form ADV Disclosure Brochure

Gordian Advisors may only transact business or render personalized investment advice in those states where we are registered, or have filed notice, or are otherwise excluded or exempted from registration requirements. Material discussed is meant for general illustration and/or informational purposes only, and is not to be construed as investment advice. Nothing on this web-site should be interpreted to state or imply that past results are an indication of future performance. Although this information has been gathered from sources believed to be reliable, please note that individual situations may vary. Therefore, any information should be relied upon only when coordinated with individual professional advice.