ShankerValleau 360°- Build & Preserve Your Wealth with Year-Round Tax Planning

ShankerValleau 360°- Build & Preserve Your Wealth with Year-Round Tax Planning

By now you’ve signed your 2021 tax returns (or put them on extension) and breathed a sigh of relief that April 15th is behind you once again. While “tax season” may imply that there is an optimal time to think about your taxes, many taxpayers are best served by a year-round, tax-wise, financial plan. Whether you’re building, preserving, or spending your wealth, intentional tax-planning remains integral every step of the way. ShankerValleau provides a unique and powerful combination of financial planning and tax expertise, with both CFP® professionals and CPAs on our team.

Tax planning is best considered an ongoing campaign. It’s staged on multiple fronts and makes best use of the available “tools of the trade.” Read on for just a few examples of the many powerful tax planning techniques we use to help individuals and families improve their financial lives.

Tax-Wise Investing

One of the best ways to ward off excess taxes is to be cognizant of taxes while investing. And yet, few investors take full advantage of the many opportunities available at every level. These levels include how you manage your investment accounts, select individual holdings, and buy and sell those holdings. Questions to ask yourself include:

  • Are you being deliberate about dividing your assets among your taxable vs. tax-sheltered accounts for overall tax efficiency?
  • For your taxable portfolio, are you patient and deliberate about your trading? Do you avoid excessive trading and short-term capital gains (currently taxed at higher rates)?
  • Does your taxable portfolio investment plan make best use of tax-loss and tax-gain harvesting opportunities when appropriate?

Saving for Education (529 Plans)

529 plans are among the most familiar tools for catching a tax break on educational costs. You fund your 529 plan(s) with after-tax dollars. Those dollars can then grow tax-free, and the beneficiary (usually, your kids or grandkids) can spend them tax-free on qualified educational expenses. Many states, Illinois included, also offer tax incentives for those who file a state income tax return and utilize the state specific college savings plan.

Saving for Retirement

The good and bad news about saving for retirement is how many tax-favored savings accounts exist for this purpose. Tax treatments for different types of retirement accounts can differ dramatically. For some, you can make pre-tax contributions, but withdrawals are taxed at ordinary income rates in the year you take them. Alternatively, you contribute after-tax dollars, but withdrawals are tax-free—again, with some caveats. Each account type has varying rules about when, how, and how much money you can contribute and withdraw without incurring burdensome penalties or unexpected taxes owed.

Tax-Planning Opportunities in Early Retirement

Many retired individuals find that the first few years of their retirement are “low income years” which often occur when an individual is no longer earning a salary, but not yet collecting social security or taking required minimum distributions from their retirement accounts. During this time a person may be living off a combination of pensions, cash on hand, and taxable investments.

While it may feel counterintuitive, the “low income years” are extremely valuable years of one’s financial life! These years are the time to take advantage of your potentially lower tax rates, before increased retirement income pushes you into higher tax brackets. Calculated tax-wise moves may provide significant tax savings during early retirement.

Saving for Heirs

Last but not least, a bounty of trusts, insurance policies, and other estate planning structures help families leverage existing tax breaks to tax-efficiently transfer their wealth to future generations.

How Can We Help?

As always with tax planning, there are caveats, limitations and exceptions to these strategies. Tax-wise financial planning means that we work year-round to help families reduce their lifetime taxes.