Future-Focused Tax Planning is Critical
By David Brooks, Founder & President of Retire SMART
In the near future, taxes are going up. It’s the law. Unless the law is changed, the federal income tax reductions enacted in 2017 will end Dec. 31, 2025.
The expected change in tax rates can leave people feeling uncertain. That’s understandable, but don’t let it paralyze you. Be proactive. Think ahead. Get out in front of your financial situation with proactive tax planning.
Notice that I said “planning,” not “preparation.” Accountants are great at preparing tax returns. I have a brother who is a Certified Public Accountant. However, I sometimes call him a “historian” because he is focused on the past. Tax preparers generally are not trained to plan for the future.
If you want to mitigate the impact of future taxes, you need someone trained to look toward the future and plan accordingly.
Most of us drive cars. When you drive, you check the rearview mirror every few seconds. That is looking at the past, at what is behind you. That’s what tax preparers do. They document what happened on the financial road you traveled during the previous year.
A tax planner looks through the windshield for opportunities to reduce future tax liability. That is a much bigger view, and it requires a much different approach. It requires analysis, imagination, creativity, and the ability to adjust if unexpected obstacles arise. It’s not guessing or throwing darts. At Retire SMART, we have dozens of tax-planning strategies based on software programs and rigorous study by our team of markets, economic factors, and the unique circumstances of each person and family we serve.
A thorough tax planner looks beyond the immediate future. This is critical because a tax strategy that provides a short-term benefit may be a net loser if it prevents an opportunity to achieve a much greater long-term gain. Your tax plan should cover every year of your retirement. What types of income will you receive at various stages of your retirement? Are the required minimum distributions timed and structured so they don’t blow up your tax bill? When is the optimal time for tax purposes to start receiving Social Security? Understanding which types of income will be taxed in which ways throughout your retirement could save you hundreds of thousands of dollars in taxes over the course of your retirement.
That’s a lot of trips, a lot of gifts to grandchildren, a lot of help for charitable causes you love, a lot of whatever you want to do with the money you saved from the tax man and kept in your hands. You worked hard to earn your retirement nest egg. Make sure you have a true tax planner charting your financial future so you can enjoy as much of that nest egg as possible.
