Tax - The Four-Letter Word

There seems to be a visceral reaction tied to the word “tax”. Nearly every political campaign is waged using the “T” word. Candidates and incumbents alike love to cast taxes into the role of the antagonist, blustering about how they will chop them down, albeit short on the details. Those employed by governmental tax servicing agencies are often projected as a legion of invasive workers dressed like FBI agents, sporting aviator-style mirrored sunglasses; arriving at your doorstep like a terminator cyborg so they can grab you by your ankles and shake the loose change out of your pockets. 

It’s a small wonder that, when tax time rolls, around, we often view income reporting as an annual chore, something to be plowed through as quickly as possible. The focus on preparing and filing a tax return is often narrowed to the 12 calendar months of the prior year. Unfortunately, this requirement to fulfill the annual tax filing leads to a singular focus on what has happened versus what may happen. 

Instead of looking at taxes as one-year isolated events, the taxpayer should be viewing the process through a wider lens. A variety of maneuvers, including paying a known tax now versus an uncertain tax later, understanding what tax rules / incentives have or may soon change (RMDs, TCIA, SECURE ACT 2.0, etc.), grasping how pre- and post-tax contributions accounts might work together, conversions in down markets, carry over losses, etc. can help create some longer term tax efficiencies beyond this year’s 1040.

Working with a tax professional who studies these techniques, coupled with an understanding of the impending milestones in one’s life (retirement, major sale or purchase, gifting, etc.) can be a great ally in developing a multi-year tax planning strategy. This long-view foresight can help your current and future financial self not dread taxes; perhaps even make taxes – dare I say – your friend? Ok, let’s not go that far. 

Cheers!   –  Steve H.