It’s that time of year. What time is that, you ask? It could be football time. I could say it’s the Thanksgiving or Christmas season, but that isn’t the time I’m referring to. From my and my Advisors’ point of view, it’s the critical time of the year for planning, and I’m not talking about financial planning.

This is the time of year for tax planning. This is the time of year when we buckle down and see what the tax code will look like next year. What is your income stream going to look like next year? What are your savings capabilities? What are your charitable intentions? What are the things going on in your life that may ultimately wind up on next year’s tax return? You see, this is the time of year that we plan for next year. One of the most significant impacts that we can make as financial planners while sitting alongside our Certified Public Accountants (CPAs) is crafting a tax plan for the following year. But, it begins before that. It starts with the creation of a comprehensive financial plan using our Guided Retirement System (GRS). The GRS creates a forward-looking tax strategy that will work for multiple years in the future.  

Why can we not simply create this multi-year tax strategy one time and then implement what we need to implement each year? You can certainly try to do it, but it’s like hitting a baseball when the balls are moving all over the place. You’re trying to hit it out of the park, and because the target is constantly moving all over, you might not be able to. To add to it, we have people in Washington that keep changing the tax code. Ever notice that every time Washington steps in and says they’ll simplify the tax code, it seems to make it more complex?

When we look at the tax code’s complexity today, along with the uncertainty of what the tax code will look like next year and the uncertainty of the spending and tax packages in front of Congress right now, we don’t know how next year will look. Because of that, we have more questions than we have answers at this point. However, when my Advisors at Osiwala Financial Group work side-by-side with a CPA, they can create a long-term, forward-looking tax strategy. Once someone has a financial plan designed, our CPA can look at how to structure savings and income streams into the future that allows each individual to pay as little tax as possible, not just in an individual year but over their lifetime.

As a CFP, when I go back and think about what I was taught in regards to comprehensive financial planning, we never had a complete understanding of tax planning as being one of the most powerful strategies. People get confused because they think that a tax return is a tax plan and nothing could be further from the truth. A tax return is essentially tax compliance. That’s simply putting the information into the tax preparation software. Very few people do it by hand anymore. I’ve seen a few here and there, but most of it is done through a software package. While most software packages are relatively intuitive, there’s a vast difference between tax compliance and tax planning. So what I’m saying is, as my career evolved over the years, I learned more about tax planning because I saw firsthand how significant it might be to the outcome. When you begin tax planning, the goal is to have the time to apply some of these concepts to have the retirement you have always dreamed of.

Let me give you an example. When the latest tax change came in and standard deductions went up, most personal exemptions went away. It caused a lot of people not to be able to itemize. When I and our CPA sat down with someone, we were doing tax planning for next year. Was there anything we could do between now and the end of the year that would impact that? So what we wound up doing was deciding to create a donor-advised fund for charitable giving and lumped in about $8000 a year. That’s a decent amount of money they had this year in their trust account. We had some nice gains, we sold off some things, and those capital gains were realized. So, we decided to take this year and create a donor-advised fund that is essentially able to gift a lump sum to a deductible charity. Then you can dole that money out over whatever period you want to. We did $32,000 and four additional years’ worth of gifting. What that did was create a little over $7000 of tax savings in just this year. Why did we not do it next year? Because we know next year, we’re unlikely to have the same capital gains that we’re going to have this year, so we wanted to take advantage of the bunching capabilities there to make that happen.

 Can taxes be retroactive? They may be able to be. They have been in the past, and they could be in the future. Want to discuss how creating a tax plan could help you pay the least amount of taxes possible for years down the road? Call Osiwala Financial Group at (248) 828-8000 or click HERE.