Investments are a matter of opinion, taxes are a matter of fact.
Over the course of your lifetime, the amount of income tax that you pay can easily be one of your largest lifetime expenses. Doesn’t it make sense to try and limit how much of that you will pay both during your working years and especially during your retirement years?
Did you know that many tax return preparers are focused on Compliance i.e. filing an accurate tax return for that year possibly without regard to future years?
Did you know that the vast majority of financial advisors will not, cannot or not allowed to give tax advice?
Since financial planning involves considering tax effects over the course of your entire life doesn’t it make sense that you consider working with someone who can give tax advice whether as a financial advisor or as the tax return preparer or even better do both the financial planning and the tax returns?
Nobody has a crystal ball and can predict what the future holds and as they say tax laws are written in pencil and can and will change over the course of years that much is certain.
However ignoring the tax effect simply because it will change at some point can have a significant long term impact. For example assume over the course of your working life you average $50,000 of taxable income for 20 years. Considering many folks work an average of 30 years in their adult life its not such an inconceivable scenario. That $50,000 average for 20 years is $1,000,000 in accumulated income, and assuming that you were at an average 20% tax effective between federal and state, that’s a potential lifetime tax of $200,000.
Even if you could only have a small annual effect, that effect across many years can be a real savings that stays in your pocket.
Now let’s assume that you’ve worked hard and approaching retirement with $1,000,000 in accumulated savings to live on in retirement. Depending on when you withdraw that money and what type of account it is in, your taxes could be 0% or 50%, which means that $1,000,000 in retirement savings could only get you up to $500,000 after tax money to live on.
Assuming that same scenario as above, you had an effective tax rate of 20% as you draw on that retirement income you could have $200,000 of that $1,000,000 go away in taxes.
What if through proper tax planning across multiple years you managed to reduce that tax bill by thousands or even a few tens of thousands, wouldn’t that be very useful to have in retirement when you are no longer earning a paycheck?
If your tax return preparer does not talk to you about long term planning ideas and if your financial advisor does not ask to see your annual tax return, consider reaching out to me and lets talk what options you might have available to you.