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Tax Planning & Compliance
We research and translate tax laws in order to apply them in such a way as to minimize the taxes
that must be paid by our clients. At the same time, we assist you in following the federal and state
tax requirements to reduce the likelihood of problems with authorities. Should there be controversy
with a taxing authority, we can represent you in resolving the issue.
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Individual Taxation
The goal of tax planning is to arrange your financial affairs so as to minimize your taxes. There are three basic ways to reduce your taxes, and each basic method might have several variations. You can
• Reduce your income
• Increase your deductions
• Take advantage of tax credits
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Reducing Income
Adjusted Gross Income (AGI) is a key element in determining your taxes. Lots of other things depend on your AGI (or modifications to your AGI) such as your tax rate and various tax credits. AGI even impacts your financial life outside of taxes: banks, mortgage lenders, and college financial aid programs all routinely ask for your adjusted gross income. This is a key measure of your finances.
Because your adjusted gross income is so important, you may want to begin your tax planning here. What goes into your adjusted gross income? AGI is your income from all sources minus any adjustments to your income. The higher your total income, the higher your adjusted gross income. As you can guess, the more money you make, the more taxes you will pay. Conversely, the less money you make, the less taxes you will pay. The number one way to reduce taxes is to reduce your income. And the best way to reduce your income is to contribute money to a 401(k) or similar retirement plan at work. Your contribution reduces your wages, and lowers your tax bill.
You can also reduce your Adjusted Gross Income through various adjustments to income. Adjustments are deductions, but you don’t have to itemize them on the Schedule A. Instead, you take them on page 1 of your 1040 and they reduce your Adjusted Gross Income. Adjustments include contributions to a traditional IRA, student loan interest paid, alimony paid, and classroom related expenses.
As you can see, two of the best ways to reduce your taxes is to save for retirement, either through a 401(k) at work or through a traditional IRA plan. Contributions to these retirement plans will lower your taxable income, and lower your taxes.
Increase Your Tax Deductions
Taxable income is another key element in your overall tax situation. Taxable income is what’s left over after you have reduced your AGI by your deductions and exemptions. Almost everyone can take a standard deduction, and some people are able to itemize their deductions.
Itemized deductions include expenses for health care, state and local taxes, personal property taxes (such as car registration fees), mortgage interest, gifts to charity, job-related expenses, tax preparation fees, and investment-related expenses. One key tax planning strategy is to keep track of your itemized expenses throughout the year using a spreadsheet or personal finance program. You can then quickly compare your itemized expenses with your standard deduction. You should always take the higher of your standard deduction or your itemized deduction.
Your standard deduction and personal exemptions depends on your filing status and how many dependents you have. You can increase your standard deduction and personal exemptions by getting married or having more dependents.
The best strategies for reducing your taxable income is to itemize your deductions, and the three biggest deductions are mortgage interest, state taxes, and gifts to charity.
Take Advantage of Tax Credits
Once we’ve tweaked our taxable income, we are ready to focus our attention on various tax credits. Tax credits reduce your tax. There are tax credits for college expenses, for saving for retirement, and for
adopting children.
The best tax credits are for adoption and college expenses. Not everyone is in a position to adopt a child, but everyone could take some college classes. There are two education-related tax credits. The Hope Credit is for students in their first two years of college. The Lifetime Learning Credit is for anyone taking college classes. The classes do not have to be related to your career.
You may also want to avoid additional taxes. If at all possible, avoid early withdrawals from an IRA or 401(k) retirement plan. The amount you withdraw will become part of your taxable income, and on top of that there will be additional taxes to pay on the early withdrawal.
One of the best, and most abused, tax credit is the Earned Income Credit (EIC). Unlike other tax credits, the EIC is credited to your account as a payment. And that means the EIC often results in a tax refund even if the total tax has been reduced to zero. You may be eligible to claim the earned income credit if you earn less than a certain amount.
Increase Your Withholding
You can avoid owing at the end of the year by increasing your withholding. More money will be taken out of your paycheck throughout the year, but you will get bigger refund when you file your taxes.
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Estate Tax Minimization
We interpret tax laws and apply them in such a way as to minimize the taxes that must be paid by our clients. At the same time, we assist you in following the federal and state tax requirements to reduce the likelihood of problems with authorities. Should there be controversy with a taxing authority, we can represent you in resolving the issue.
We’ll help you identify goals.
Our primary goal is to help you identify and clarify your estate planning goals.Most individuals have goals that center on preserving and directing the disposition of their assets, while reducing the potential estate tax liability and providing for adequate liquidity.
We’ll help you review your current situation.
Our approach includes such activities as
• Analyzing your current financial situation
• Gaining knowledge of your nonfinancial situation (family, business, etc.)
• Identifying any anticipated assets (remainder interests, life insurance proceeds,
potential inheritances, etc.)
• Determining estate liquidity needs
• Reviewing asset titling
• Reviewing relevant documents (existing wills, trusts, insurance policies, retirement plans, etc.)
Developing Estate Planning Strategies
After reviewing your goals, assets, liquidity, legal documents, and other aspects of your life, we develop and evaluate alternative strategies that, based on available resources and other constraints, are designed to fulfill your estate planning goals.
Coordinating the Estate Planning Team
As just one of the professional on your estate team, we think its important to periodically coordinate with the other various members of your estate planning team—attorneys, insurance brokers, investment professionals, actuaries, appraisers, etc.—to ensure that your strategies are properly implemented.
Implementing and Monitoring
We often take the role of assisting you on the implementation of your various recommendations, including the coordination of such activities as the selection of an attorney to draft documents; the transfer or re-titling of assets; gifting programs; and purchase of insurance. In addition, it is important to monitor changes in your family, health, business, and other life situations on an ongoing basis to assess the continuing validity of the estate plan.
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