Thank goodness that's over...
Hope your day is off to a great start!
Well, another tax season has come and gone.
And all I can say is thank goodness that's over!
Of course, some of you filed extensions so you may still be waiting on K-1s or other tax documentation to finish up your 2021 tax returns between now and October 15th.
And to my CPA friends out there, I hope you're getting some much needed rest and recuperation after what sounds like one helluva tax season.
Yet, tax preparation is only a small - but very important - part of your overall taxes.
Taxes, in one form or another, are with us 365 days a year.
That's why I find myself doing more and more year round tax planning with my clients.
For instance, look at this client tax report. (this is an anonymized report for an actual client)
We all file our taxes each year.
And whether we do our own taxes or get help from a CPA, I'm pretty confident most folks don't truly understand their taxes.
Or their tax returns.
Well, I'm no CPA and I can't give specific tax advice, but taxes are an integral part of your financial plan - and they're not going away - so it would be irresponsible not to look at your tax return and make sure our financial planning decisions are made in the context of your current and future tax situation.
Right?
That's why this time of year I ask each of my clients (who haven't filed an extension) to share their tax return with me.
It allows me to do a few things...
I can generate a tax report like the one I shared above.
This report isn't magic, but it does provide a nice overview of your current tax profile. It also provides some nice information that is important in future decision making.
But the real key to having a copy of your tax return is it allows us to run "tax scenarios."
Just like in your financial plan where we can (and often do) look at different decisions and scenarios like what if you retired a year earlier, what if you reduced your portfolio risk, or what if you saved more money, we can do something similar with your taxes.
We can answer questions like:
what if I convert $25K of my traditional IRA to a Roth IRA this year?
what if I setup a donor advised fund?
what if I exercised my stock options this year?
will my IRA RMDs take me above the next IRMAA threshhold?
how will my Social Security be taxed if I start it now versus waiting 2 more years?
and virtually any other tax planning question that may arise...
Here's a glimpse of what side-by-side tax scenarios might look like:
So if you're a client, let's work on getting a copy of your completed 2021 tax return so we can include it in our planning discussions.
And if you're not a client, be sure your advisor is looking at your tax return each year and giving you tax-aware advice.
Note: many financial advisors out there don't - or can't - look at your tax return because that's not something they do or their parent firm won't allow them to. Food for thought...
We have until this time next year until we're in the throes of tax prep once again, but remember that tax planning is an important part of your financial plan.
And it's a year-round effort.
Links & Things
I've gotten a lot of questions over the years about Social Security and how spousal benefits work if you get remarried. I address this in my latest blog post:
If you've read my writing for any length of time, you'll know that I'm fascinated with people. How they think, how they behave, and how they misbehave. And while I'm a fan of virtually everything that Morgan Housel produces, I really enjoyed this one... (it's long but well worth the time to read)
Thank you, as always, for reading.
And if you have any questions or an idea for a future newsletter, blog post, or YouTube video, I'd love your input.
Just hit reply - I read (and appreciate) every email you send.
Until next Wednesday,
Russ