Tax Planning

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Taxes, like death, are inevitable facts of life. But why pay more than you have to? The key to minimizing your tax bill is to make the most of your tax planning opportunities.

For high earners, taxes likely make up the single biggest expense incurred over the long haul—and a too-high tax burden can spell disaster. With more money going to Uncle Sam, you have less to spend on things of your own choosing, including vacations, your kids’ private school and college education expenses, and your retirement.

Instead of scrambling to find write-offs and deductions at tax time, it’s critically important to take a proactive approach to lower your tax bill and increase your income.

Proactive tax planning is an essential component of your comprehensive financial plan. With an effective tax planning strategy, you can better enjoy the present knowing that your future is protected. 

Tax planning makes use of tax law, various financial instruments, and investment and risk management strategies to maximize tax efficiency. In short, our goal is to arrange your affairs in a way that reduces your tax liability across all individual, investment, and business decisions.

When putting together your tax planning strategy, we’ll assess your individual finances from top to bottom, including:

  • Short- and long-term financial obligations
  • Family structure
  • Business structure
  • Investment portfolio
  • Expected future earned and unearned income
  • Pending asset purchases

After getting to know you and your unique situation, we’ll help you find the best tax planning strategy by:

  • Taking full advantage of beneficial tax-law provisions.
  • Uncovering tax deductions and tax credits.
  • Utilizing all appropriate tax breaks available under the Internal Revenue Code.

Prosperity Financial Group does not provide legal or tax advice. However, we can connect you with trusted legal and tax professionals regarding your individual situation. Our objective is to make sure that you’re paying your responsible share of taxes and not a penny more.

Table of Contents

The Importance of a Tax Planning Strategy

Is your tax liability as low as possible? While none of us can eschew taxes entirely, there are myriad tax reduction strategies that you can capitalize on to end each year with more money. 

Many people don’t understand the importance of a bulletproof tax planning strategy until after committing a huge financial blunder that costs a small fortune in otherwise avoidable taxes. There are many ways to do this: mistiming the sale of appreciated securities, withdrawing retirement funds too soon when hanging on for just a little longer would’ve saved you from a stiff penalty, or failing to arrange for significant tax exemptions. The list goes on and on.

As your Fiduciary Advisors, we’re here to make sure that you don’t have to learn this lesson the hard way. The last thing you want is to create a bigger tax bill for yourself after failing to use the tax-smart alternative!

That’s why it’s important to consider taxes before pulling the trigger on significant transactions. And considering that federal income tax laws are becoming ever-more complicated, a solid tax plan is more advantageous than ever before.

With a savvy Fiduciary Advisor keeping an eye on your tax obligations and opportunities throughout the year, you can stay compliant with the tax code while shielding your finances from unnecessary investment, income, business, life event, and estate taxes down the road.

We’ll work with your CPA and attorneys to forward your important information on your behalf, keep you up-to-date with tax developments, and help you implement tax-minimizing strategies.

Tax Planning 1

Tax Efficient Investing

While taxes don’t necessarily drive your investment decisions, they are an important consideration. All investment decisions you make have a tax impact, even if that impact isn’t felt right away. Taxes can reduce your investment returns, and, over time, potentially defer your long-term goals. 

Investment tax planning involves arranging your assets and managing your transactions in a way that minimizes your ongoing tax obligations. This requires year-round planning. We’ll help you understand the tax implications of different investments and investment strategies, including:

  • Tax loss harvesting
  • Tax loss carryforwards
  • Tax management
  • Tax free municipal bonds
  • Capital gains
  • Fund distributions
  • Fund or ETF selection
  • UTMA custodial accounts
  • 529 Savings Plan
  • Charitable donations
  • Investment tax credit programs
  • Roth IRA conversion opportunities
  • 1031 Exchanges

Tax Loss Harvesting

You can offset realized investment gains, as well as up to $3,000 in taxable income annually, with the loss on the sale of a security. We’ll help you navigate IRS rules on wash sales. We’ll also evaluate your gains and losses to determine whether “loss harvesting” can boost your portfolio while reducing taxes from the sale of appreciated assets.

Tax Loss Carryforwards

While $3,000 of capital losses can be used annually to offset taxable income, any remaining unused capital losses can be carried forward. Carryforwards are used to offset gains in subsequent years, which translates to lower future tax payments.

Tax Management

We can minimize your tax impact by limiting the amount of taxable events in your portfolio. This includes tax-loss harvesting, selecting investments that produce qualified dividends, and reducing capital gains distributions.

Tax Free Municipal Bonds

We can help you decide whether muni bonds, which are exempt from federal taxes, are right for your individual tax planning strategy. As a bonus, if your muni bonds were issued in your state of residency, your coupon payments may also be exempt from state taxes.

Capital Gains

We’ll steer you away from higher tax rates by balancing holding periods and risk and return expectations. Securities held for at least one year before being sold are taxed as long-term gains or losses with a top federal rate of 23.8 percent. In contrast, short-term gains are taxed at 40.8 percent.

Fund Distributions

Consider the date of the distributions when buying or selling a mutual fund. You’re likely to incur a tax liability if you own the fund on the date of record for the distribution in a taxable account, regardless of how long you’ve held the fund.

Mutual Funds and ETFs to Invest In

We can help you evaluate the tax profile of a fund before investing. Mutual funds and ETFs vary in terms of tax efficiency. In general, passive funds (most ETFs and index mutual funds) tend to create fewer taxes than active funds (mutual funds). There can even be significant variation, in terms of tax efficiency, within these categories.

UTMA Accounts

The most common trust for a minor is a UTMA custodial account. You can “gift” highly appreciated shares of stock to your child, have the child sell it, and then report a portion of the profits at the child’s substantially lower tax bracket.

Fund a 529 Savings Plan

You may use a 529 Education Savings Plan to shift up to five times your annual gift exclusion limit out of your estate and into a 529 account. This move will shield the growth of your money from future income taxes, so long as the money goes toward the educational expenses of your children or grandchildren.

Charitable Donations

As an alternative to donating cash, you can donate substantially appreciated securities to nonprofits and receive a write-off for the full amount. That way, you’ll save yourself the trouble of selling the assets yourself, paying taxes on the gain, then giving smaller donations to the charity.


If you give regularly to charities, consider putting several years’ worth of gifts into a donor-advised fund (DAF). You’ll be able to spread out the giving from the DAF based on your charitable intent.

Investment Tax Credit Programs

Tax credits are tools used by the federal government and state governments to encourage business development. Investment tax credits are basically a federal tax incentive for business investment. You can deduct a certain percentage of investment costs from their taxes.

Use Your Roth IRA Conversion Opportunities

Certain tax-advantageous IRA conversion opportunities, like a down year in your income, are prime times to convert your Traditional IRA to a Roth with a lower tax bill. If you time your conversions well, you can remove substantial portions of your wealth from the required minimum distribution trap by the time you retire.

1031 Exchanges

A 1031 Exchange, also called a Starker Exchange or Like-Kind Exchange, is a powerful tax-deferment strategy used by some of the biggest names in the real estate investment sphere. The 1031 allows you to move your investments to move from one location to another without the IRS knocking. You can avoid paying capital gains taxes when you sell an investment property by reinvesting the proceeds from the sale into another property of like-kind.

Income Tax Planning

When planning for tax impact on your income, we’ll factor in the types of income that you might receive. Common streams of income include dividends, interest, annuity payments, capital gains, inheritances, employer benefits, and government benefits. 

We can help you take advantage of opportunities to manage, defer, and reduce your income taxes by assessing the following items:

  • Retirement plan accounts
  • Non-retirement investment accounts
  • Personal tax deductions
  • Tax-deferred programs

Retirement Plan Accounts

The difference between tax-exempt and tax-deferred retirement plans comes down when your taxes are due: now or later. We can help you decide how much to contribute to your retirement account based on your business opportunities and anticipated expenses, such as vacations or home remodeling.

Non-Retirement Investment Accounts

Non-qualified accounts, like Health Savings Accounts and brokerage accounts, allow you the benefit of tax diversification. Because there are no restrictions surrounding withdrawals, you’ll enjoy more flexibility regarding how and when you access your money.

Personal Tax Deductions

Your tax liability is calculated based on your taxable income. Generally speaking, therefore, the higher your deduction level, the lower your tax liability. Proper timing of your deductions, like charitable contributions, can bring down your tax bill even further.

Tax-Deferred Programs

By deferring income to a later year, you can minimize your current income tax liability and invest the money that you’d otherwise use to pay income taxes. During your year-end tax planning session, we’ll look at different ways to time your income and deductions to give you the best possible tax result.

Life Event Tax Planning

How would changing jobs affect your taxes and benefits?Would tying the knot cut your tax bill, or will you fall victim to the marriage tax penalty?

How would a divorce affect your next tax return?

As your life changes—through marriage, having children, sending your kids to college, and entering retirement—so does the set of tax rules that affect you. A newborn brings tax breaks; death brings a series of tax repercussions; and there are varying tax considerations for every event in between.

We’ll help you assess how these major milestones can create opportunities or pitfalls, as well as the best way to report, spend, and save for these events.

Business Tax Planning

It’s critical for business owners to keep your tax house in order. Every year, business transactions grow in complexity. The avenues through which your business can be taxed also grow in parallel, and it’s further compounded if your business spans multiple jurisdictions. 

Your tax considerations span your choice of business entity, your retirement plan selection, your accounting decisions, and continue through the sale of the business. 

Moreover, all your tax obligations—income, employment, estimated, self-employment, excise, sales, and goods and services—hold the real potential to hinder your business’s growth and profitability. By failing to take advantage of all the valid opportunities buried within tax codes, you’ll be losing out on unclaimed rebates, benefits, chargebacks, and deductions.

When you’re ready to move on from your business, you’ll need a plan for proceeding in the most tax-efficient way. This includes working out:

  • Buy-sell agreements
  • Business valuation issues
  • Business succession strategies
  • Exit strategies
  • Tax planning strategies to minimize potentially massive tax liabilities

We can help you by finding the most effective interpretation and application of tax laws and statutes to defer and/or reduce your business taxes.

Wealth Transfer Planning

If you plan to leave a legacy, you may incur state and federal taxes, including gift, estate, income, transfer, and inheritance taxes. 

We can help you understand and minimize these taxes through wealth-protective strategies:

  • Wills and trusts. When transferring wealth to a surviving spouse or subsequent generation, wills and trusts can protect against unnecessary taxes.
  • Irrevocable trust. You can set up and transfer your assets into an irrevocable trust. By doing so, you surrender ownership of the assets and thereby remove those assets from your taxable estate. Some examples include generation-skipping trusts, qualified personal residence trusts, grantor retained annuity trusts, charitable lead trusts, and charitable remainder trusts.
  • Prudent gifting. Many times, it’s better to give money or assets to your loved ones while you’re still around rather than wait until after you pass. By gifting during your lifetime, you’ll remove both the present value and any potential future growth of the transferred assets from your taxable estate. This can help successor generations now while reducing taxes later.
  • Life insurance. Buying the right amount of life insurance is useful for restoring economic loss. Aim for a death benefit that’s large enough to replace that economic loss with investment earnings. Life insurance payouts can provide liquidity to pay for taxes and where family assets are concentrated in non-liquid investments, such as real estate or businesses. 

We Can Help

Proactive tax planning is an essential detail of wealth management. Between your investments, your various income sources, life events, business ownership, and your estate, each facet of wealth has its own tax planning implications.

By reviewing your income, expenses, and potential tax liability throughout the year—and keeping in line with changes in tax laws—we can help you time income and expenses to your advantage. It’s important to be both deliberate and strategic when employing tax planning strategies, and it’s equally important to begin well in advance of your tax-filing deadline. 

No matter what your current situation looks like, there’s no better time than now to capture the far-reaching benefits of proactive tax planning.

We can devise well-rounded tax planning strategies that minimize your tax liability and ensure efficient investing as you work toward your financial goals.

Prosperity Financial Group does not provide tax advice, but we’ll work with your qualified tax professional to ensure that your investment plan and your retirement plan are aligned with the best long-term tax planning strategies. If you don’t have a qualified tax professional, we’re happy to send you a referral.

If you’re ready to discover your tax planning opportunities, please fill out the form below and we’ll get back to you shortly. We look forward to hearing from you.

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DISCLAIMER: Advisory Services offered through Prosperity Financial Group, Inc., an Independent Registered Investment Advisor. Securities offered through Fortune Financial Services, Inc. Member FINRA/SIPC. Prosperity Financial Group, Inc. and Fortune Financial Services, Inc. are separate entities.

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