You don’t have to be a rocket scientist to do a little planning ahead to save big dollars on your tax return.
Today I want to talk about tax planning, and why it’s so important.
I recently got a call from a woman who wanted to take $30,000 out of her IRA to buy something special. She went to her financial planner to take the money out and he told her that she needed to take another $7500 out just to cover her taxes, but to talk to a tax person first. So she called me.
Well, I ran the numbers for her and if she took $37,500 out of her IRA , it was going to cost her over $9,000 in state and federal taxes combined. Even though she would be withholding $7500 for her federal taxes, she’d still have to come up with another $2000 to be whole. Then we started talking.
You see, she didn’t need to make the purchase right away, she was just thinking about it. So I decided to see what would happen if we split the $30,000 between 2013 and 2014, $15,000 each year. What a difference! Instead of paying over $9000, she’ pay $688 per year total for her state and federal income taxes combined. That wasn’t a typo–six hundred and eighty-eight dollars a year. $1376 total tax for a savings of over $8000!
So by waiting for another 60 days to take half the money she wanted out of her IRA she’d save $8000. How cool is that?
In fairness, the woman’s particular situation just put her into a sweet zone for this to work out so well. For many people, splitting up the IRA withdrawal would not save them any taxes at all. But my point is–how do you know? By taking the time to ask–she saved $8000.
What’s going on in your life that could benefit from a little tax planning? Selling some stocks or mutual funds? Donating to charity? Do you own a small
business? Are you getting married? Getting divorced? Having a baby? Getting a new job? Buying a home? Any of these events, and many more, could use
a little tax planning.
My business card says, “If you don’t have a tax strategy, you’re probably paying too much.” It’s true. So often in my job, I’m trying to help people who’ve already made decisions and come to me when its’ too late to make changes. Why would you want to give the IRS more money then you need to? It’s not rocket science, it’s just common sense. The best way to keep more of your money is to make a plan for keeping it. Call me. I can help.
Thanks Brian,
Now’s the time of year when my phone starts ringing with people who are looking for jobs for the upcoming tax season. I’m surprised how many people who are “good at math” think they can do taxes with no training or background whatsoever. Anyone wanting to prepare taxes for a professional firm is going to want that EA designation or at least be on track to get it.
We tax professionals know so many stories about poor tax planning that I have difficulty distinguishing between the ones that happened with my clients and the ones I only heard about. My main goal with tax students is to connect realistic advice with the technical tax treatment of scenarios in their sample EA exam questions at http://fastforwardacademy.com/enrolled-agent-exam-prep.htm. Taxpayers hiring Enrolled Agents like you can expect a deep level of knowledge that results in predicting tax impact before a mistake in judgment is made. I’m glad you had a story here about someone who received tax assistance in time.