Hey Reader,

From the time I could comprehend them, taxes have always fascinated me.

Tax planning was my favorite college course and it continues to be my favorite planning area after nearly 8 years in the industry.

This may come as a shock, but the secret to paying less taxes is to plan for them.

As a financial advisor, I don’t file my clients' tax returns. So, I’m always asked, “If you don’t file taxes, what value can you add?”

I’ll answer that question today by sharing 10 ways I help clients lower their lifetime tax bill.

1. Choosing the Right Retirement Account

What are we trying to accomplish by choosing Traditional vs. Roth?

We’re trying to increase the money in our pocket and decrease what goes to the IRS.

We do this through tax arbitrage – putting money away at a high tax rate and withdrawing it at a lower tax rate in the future.

For example, if you’re in the 37% marginal tax bracket now, but your retirement income and withdrawals will place you in the 22% marginal bracket, you have a 15% arbitrage opportunity.

That’s a simplified example (especially with changing tax laws), but you’d be surprised how many people I see making a suboptimal choice for their situation.

A big part of any client's financial plan is doing a thorough analysis to find the right choice.

2. Tax Projections

The thing about taxes is that 99% of the strategies you can use must be done by December 31st.

That’s why proactively planning throughout the year is so valuable.

I regularly update my client’s tax projections to adjust their estimated payment plans, avoid IRS penalties and interest, identify opportunities for Roth conversions, bunch itemized deductions, and more.

Instead of crossing your fingers and hoping for the best, you can actually feel a sense of control over your taxes.

3. Tax-Loss Harvesting

Tax-loss harvesting is the definition of turning lemons into lemonade (one of my favorite drinks).

If a stock falls to a certain threshold during a market correction, I use tax-loss harvesting to sell the security, buy a similar security (that avoids a wash sale), and use the loss to offset future gains in the current or following tax years.

4. Business Owner Planning

Business owners have countless opportunities to reduce their taxes through company retirement accounts, business tax elections, Qualified Business Income (QBI) deduction planning, the timing of income and expense recognition, and more.

Those opportunities come with a greater responsibility to properly plan, make accurate estimated payments, and adjust your strategy when you're thrown the inevitable curveballs of business ownership.

These are some of the most lucrative (and overlooked) opportunities.

5. Equity Compensation Planning

If you aren’t planning for taxes with your equity, you’re leaving a massive amount of money on the table.

Restricted Stock Units, Nonqualified Stock Options, Incentive Stock Options, Employee Stock Purchase Plans, and other forms of equity all have different tax consequences at vesting, exercise, and sale.

I create exercise and sell strategies to maximize the after-tax value of client’s equity comp while accounting for tax withholding, liquidity needs, and overall financial goals.

6. Capital Gains Management

Whether it’s the sale of stock, a business, real estate, or any other asset, you need to account for capital gains tax.

Even at the lower capital gains rates, you can end up paying over 30% if you live in a state with high income tax rates.

Whether it’s timing the sale in a lower tax year (e.g., retirement, gap year, launch of a new business, etc.), gifting securities or business shares prior to the sale, or harvesting capital losses to offset gains, planning ahead can save thousands.

7. Retirement Withdrawal Strategy

There’s a lot to consider in retirement.

• Taxation of Social Security
• Roth conversion opportunities
• Potential to recognize capital gains at 0%
• Medicare surcharges at certain income thresholds
• Qualifying for health insurance premium tax credits (for pre-Medicare retirees)

I focus on blending withdrawals from the mix of tax-deferred, tax-free, and taxable investment accounts to minimize taxes and squeeze the most out of my client's savings.

8. Charitable Gifting Strategies

Philanthropy isn’t about tax savings.

But a smart gifting strategy saves you taxes and leaves you with more money to make an impact. It’s a win-win for you and the cause(s) you support.

Depending on my client’s goals and circumstances, we utilize tools and strategies like Donor Advised Funds, charitable trusts, gifts of appreciated securities, and more.

You can't discount the value of a great charitable gifting strategy.

9. Tax-Efficient Asset Location

I touched on this in last week’s email, so I’ll be brief, but asset location can’t be overlooked.

​Vanguard found that asset location can add up to .60% to net returns!

It’s one of the pillars of my investment management approach.

10. Collaborating with CPAs and Other Professionals

I love tax planning, but neither I nor any other financial advisor can replace a great CPA.

Like most teams, we work best together.

The best financial recommendations are made with a full view of your financial picture. A great financial advisor takes the time to familiarize themselves with your situation and the changes you experience so they can provide relevant context to other professionals and collaborate to find the optimal solution for you.

Conclusion

Taxes are the biggest expense most of us will pay over our lifetime. Proactively planning throughout your life is the easiest way to put more money in your pocket.

I hope this helped shed light on the value of tax planning and some areas where you may be able to improve your own situation.

You can reach me directly for comments and questions by replying to this email!

-Matt Garasic

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Disclaimer:

This is for general educational and illustration purposes only. This should not be taken as individual investment, tax, or legal advice.

Consult your legal, tax, and financial team before implementing any financial strategies for your specific circumstances.