Many people think about tax planning around April 15. In fact what they are really thinking about is tax preparation. The best time to start tax planning for 2014 was January 1, 2014 and not April 15th of 2015. Many of us are used to focusing on meeting deadlines. You might buy one of the popular programs or go to a tax preparer somewhere before that time and except for things such as making a contribution to an IRA there are a few things you can do to affect your return for the previous year.
Tax Planning vs. Tax Preparation
Author and CNN Host Fareed Zakaria highlights that the federal tax code is over 16,000 pages. He has argued for a simpler tax code in the one that we have today. We certainly need more decoding of the code. Many people feel that they cannot afford the services of a CPA or Enrolled Agent and simply do it themselves. However not many of us have time to read 10,000 pages of tax code to see what deductions we may position ourselves to qualify for.
The tax code in many ways is trying to direct social behavior. There are income reductions, deductions and credits. Each one has its own value in reducing your ultimate tax bill. There are child credits, deductions for charitable cash and non-cash contributions and credits for green energy improvements. Many of these things are totally unknown the average person that may be able to qualify if only they had no. Once the tax deadline is over most people simply go back to their normal behavior and totally forget about looking into ways that they may have been able to reduce their taxes.
Tax Planning, Financial Planning and Advisor Gamma
David Blanchett Head of Retirement Research, Morningstar Investment Management says that tax planning is one of the key areas of value that a financial planner (CERTIFIED FINANCIAL PLANNER™ professional) can provide to clients. Let’s use this simple example if you made $10,000 on investment in you held it for 360 days in your marginal tax bracket was 35% you would lose $3500 and only net $6500. However if you had held that for 20 more days and then sold you would’ve only paid 15% in would’ve netted $8500 $2000 more I once worked with a stockbroker who felt that his only job was to make money for his client and that it was the job of the CPA to deal with the tax consequences. If the advisor did not have to work in your best interest you really cannot fault them for not making you aware of that as a consideration in in the sale however, if you are simply compensating them for the transactions that they handle for you could see why they may want to make money on the transaction now rather than see you pocket $2000 more.
I recommend that you have your tax advisor and your investment advisor ideally a CERTIFIED FINANCIAL PLANNER™ professional get together and discuss your case to see if there are opportunities. You may also want to include your estate planning attorney as I’ve seen cases where advice was given by a CPA that was different from the estate planning attorney that ended up costing the taxpayer additional monies when their tax returns weren’t coordinated.
(1) This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax advisor.
(2) The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.
(3) Securities and Advisory services offered through LPL Financial, a Registered Investment Advisor. Member FINRA/SIPC.
(4) The LPL Financial Registered Representatives associated with this site may only discuss and/or transact securities business with residents of the following states: AZ, IL, MI.
