Lessons from the Pros


The Secret to Reducing Your Tax Liability

Holiday season is officially here! This means that taxpayers should recognize that we’re just a few weeks away from the end of the 2018 calendar year. In other words, you are running out of time to reduce your tax liability come April.

Tax planning could save you a substantial amount of money.

What Is the Secret to Reducing Your Tax Liability?

In two words, Tax Planning.

The purpose of tax planning is to ensure tax efficiency. Or, in laymen’s terms, to make sure you pay less taxes.

Tax planning covers several considerations. These considerations include the timing of income, size and timing of purchases or other expenditures, the selection of investments and types of retirement plans that need to complement the tax filing status and deductions to create the best possible outcome.

Who Should Do Tax Planning?

If you pay taxes, you should do tax planning. Many think that tax planning is reserved only for affluent taxpayers, but this couldn’t be further than the truth.  In my experience, all taxpayers can benefit from building a tax plan and monitoring it periodically. This is arguably the best way to reduce your tax liability in a consistent manner.

What does a good Tax Planner do?

  • A good Tax Planner asks the taxpayer many questions, analyzing the taxpayer’s situation in order to evaluate the taxpayer’s financial goals.
  • A good Tax Planner then offers effective tax solutions.
  • A good Tax Planner will closely monitor the status of the taxpayer and the changes in the tax code over time to make sure the plan set forth is still the most effective plan to reduce the taxpayer’s tax liability.

I would like to share with you a recent consult I had with one of our students, we’ll call him David.

David started the conversation by letting me know he is currently unemployed and considers himself to be semi-retired as he is 69 years old and not expecting to get any job offers soon. I, naturally, asked David about his source of income. Each question; are you collecting social security?, what about a pension?, rental income?, consulting income?, came back with the same reply, “No”. David informed me that he had no taxable income for the last 2 years and that he has been living off his savings since his wife passed away after dealing with a terrible illness.

At first glance it seemed as if there was nothing I could do to help David. I mean, the guy has had no taxable income and no tax liability for the last two years. However, I kept asking questions, kept looking for tax planning opportunities, and that paid off.

It turns out that David received many stock options over the years from his previous employer and that currently he has over $1,000,000 in long term capital gains. He also shared that he has about $350,000 in IRA funds and that he is eligible to receive a $3500 monthly benefit from social security.

Schedule a Free Tax ConsultationArmed with this information, I immediately suggested that David should liquidate some of his long-term capital gain position (at least $50,000), so he could take advantage of the 0% long-term capital gain he is eligible for in 2018. This is important for him going into 2019, because next year he will have more than $40,000 in social security income, he may need to take the Required Minimum Distribution from his IRA as he turns 70 ½ and that next year he will no longer qualify for the 0% long-term capital gain rate.

This tax planning strategy will save David more than $10,000 in tax liability! Needless to say, David was quite happy. How many of you would like to make $10,000 or more in one phone call? How many of you would like to make $10,000 or more in one hour just by talking to a tax professional?

We also talked about future tax planning opportunities in years to come, such as what amounts David should withdraw from his IRA, how David should structure his trading business and other ideas. David could potentially save tens of thousands of dollars in the upcoming few years by implementing a few tax saving strategies.

I hope the story I shared with you shows you that really ANYONE can benefit from tax planning. So, what are you waiting for? Schedule a tax planning session and see if you can save some money as well. At this time of year, we could all use a few extra dollars to help pay for all the upcoming holiday expenditures. Happy holiday season to all and may it be a blessed time of year.

DISCLAIMER This newsletter is written for educational purposes only. By no means do any of its contents recommend, advocate or urge the buying, selling or holding of any financial instrument whatsoever. Trading and Investing involves high levels of risk. The author expresses personal opinions and will not assume any responsibility whatsoever for the actions of the reader. The author may or may not have positions in Financial Instruments discussed in this newsletter. Future results can be dramatically different from the opinions expressed herein. Past performance does not guarantee future results. Reprints allowed for private reading only, for all else, please obtain permission.

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