By: John P. Napolitano | Founder and Chairman
Before I got into financial advice, I was a CPA for a long time. I still carry the license. The reason I crossed the aisle was while taxes are complicated, it’s not that difficult to tell people what happened last year.
Worse, I got tired of telling people when they owed tax bills they didn’t expect. “Hey, you owe $100,000+ in taxes,” is a great way to ruin someone’s day, especially when it was perfectly preventable.
Each year, the tax game is won (or lost) primarily in the 4th quarter. You have a perspective on what your taxable income will be like for the year, but you still have time to manage it. For now, here are a few of the most important tax planning conversations we want to have.
Play the Long Game
When we talk about tax planning, we’re not trying to get you the lowest tax bill possible this year. We are looking at your long-term liability. No one wants to trade $50,000 in tax savings this year in exchange for an additional $200,000 in taxes over 10 years.
Defer in High Years, Accelerate in Low Years
When your income is highest, everyone wants to lower their tax bill. That’s good planning. The inverse is where people go wrong. When you have years when your income is low, we often want to accelerate taxes and take advantage of those lower brackets. For example, job transitions or pre-RMD retirement years present great opportunities to leverage low tax brackets.
Ownership Strategies + Multi-Generational Planning
The biggest taxable events often happen during an inheritance. This is more than looking at your tax bracket over the years. This focuses heavily on what you own and how you own it. From trusts to real estate to alternative investments, the most important questions we can ask here revolve around ownership.
Equally important, ownership is not a set-and-forget topic. As your wealth changes, the optimal ownership structure for your assets changes. We encourage every client to review this with us on a regular basis.
One Final Thought on Advisors
All of this is best done with your advisor and CPA working collaboratively on your behalf. That said, I take issue with advisors who hide behind “this is not tax advice.” You need a strong CPA at the table, but if your advisor can’t talk about tax planning, you need a new advisor.
We’re in the fourth quarter of the calendar. Now is when you win the tax game.
