Tax planning best practices are simple. You need to know when to communicate, what to communicate and then communicate!
In the United States, most people rush to file their annual tax return for 2 reasons:
1) To get a tax refund
2) To not worry about it until next year
The issue with this approach is that it encourages people to be reactive to their tax situation. Finances were not something commonly discussed in my home growing up. For some reason, it has been a taboo to talk about how much money we make. As money is a status indicator in society, this makes a lot of sense why folks wouldn’t want to disclose that information freely.
I encourage taxpayers to be more open with 2 circles: their family and their advisors. Taxpayers that are reactive instead of proactive to their taxes have increased financial distress, unrealistic expectations, and undue stress. Implementing tax planning best practices can have dramatic outcomes.
A real situation :
- A client sold a large portion of their portfolio thinking the deal was long term and their long term capital losses would offset income.
- They were upset to find out the gains were short term and their long term capital losses would offset nothing.
- They told us about it the following year during tax season when there was nothing we could do.
Being tax reactive is flawed. Taxpayers benefit from making tax informed decisions.
Tax is an inevitable part of life. I do not recommend making decisions for the sake of taxes, but taxpayers benefit from discussing a potential transaction with their tax advisor before the deal is done. As a result, they will have more favorable tax situations when it is time to file their annual tax return.
A client I work with came to me with a messy situation. He is an entrepreneur that always focuses on the next best deal. He started a company and made a large profit, but he also paid an enormous tax bill.
I was only able to do so much for him for his prior tax year, we made a concrete, easy to follow plan to save him $100,000 next year.
That meeting opened his eyes because now he comes to me regularly to discuss his decisions beforehand and keeps me informed so that I can help him mitigate his tax exposure.
How to Make Tax Planning Best Practices Work for You
Connect with a professional tax advisor to discuss your questions. A good tax accountant will educate and bring awareness of the things you don’t know. The best times to check in are when you are making a big financial decision or October through December.
Bolster your financial literacy so that you can communicate your needs better. This practice empowers informed decisions for your future. Planning makes you intentional in your finances and leads to greater success.
Tax Planning is the New Way
Taxes are no longer a once a year event. Partner with the right tax advisor to help you achieve your financial goals.
Frequent changes to the tax code, shifting economies, and the unsurety of the future create the need for an ongoing conversation between individuals, families and businesses with their tax and financial advisors to accomplish long term financial goals.
Making this change will help you become intentional in your financial plan, lead to higher tax savings, and expand your financial education.
Visit Vero CPA to connect with tax professionals and implement this best practice.