Home » Blog » Accountants in Miami » When Good Tax Planning and Good Financial Planning Collide
2020 Year-End Tax Planning Strategies, writing a business plan for home health care, why do i need an accountant for my small business, why do i need an accountant, when to hire an accountant for a small business, what does a cpa charge per hour, understanding cash flow statement, understand cash flow statement, tu contador en miami, top cpa firms in miami, the outsourced accountant, taxes en miami, tax services miami fl, tax services, tax preparation miami, tax preparation, tax planning, tax miami, tax firm miami, tax filing miami, tax en miami, tax cpa, tax consultants, tax accounting miami, tax accountants near my location, tax accountant near me, tax accountant miami, tax accountant florida, tax accountant, talk to an accountant , start up costs on balance sheet, start up costs capitalized, start up cost capitalization, start up business accountant, start home health agency business, small cpa firms near me, small business tax preparation south florida, small business tax preparation near me, small business tax cpa, small business tax accountants, small business tax accountant near me, small business set up accountant, small business cpa services, small business cpa near me, small business cpa, small business accounting services near me, small business accounting professionals, small business accounting miami, small business accounting firms, small business accounting, small business accountant near me, small business accountant miami, small accounting firms near me, s corp accounting, reviewed financial statements, quality accounting and tax service, public accounting, public accountant near me, profit & loss statement, professional financial statements, professional accounting and tax, physician accounting services, physician accountant, pharmacy accounting services, pharmacy accountant, personal cpa, payroll and bookkeeping services near me, p&l miami, p&l accounting & tax services, organizational costs gaap, new business startup accountants, need accounting help, need accountant for small business, miami tax services, miami tax preparation, miami tax expert, miami pro tax and accounting, miami cpa firms, miami cpa, miami bookkeeping services, miami bookkeeping, miami bookkeepers services, miami bookkeepers, miami accounting firm, miami accounting, miami accountants, miami accountant, medicare cost report preparation, medicare cost report for home health agency, looking for accounting services, looking for a good tax accountant, local business accountants, llc and s corp differences, la contabilidad, income tax miami, income tax accountant in miami, income tax accountant, how to read a cash flow statement, how to read balance sheet, how to find the best accountant, how to find an accountant for small business, how to find an accountant, how to find a tax accountant, how to find a new accountant, how to find a good tax accountant, how to find a good cpa, how to find a good accountant, how to choose a tax accountant, how much does a cpa charge per hour, how much cpa charge per hour, how do you find a good accountant, how do i find a good accountant, how can a cpa help a small business, home health care services business plan, home health care business plan, home health care agency business plan, home health business plan, home health agency business plan, hiring an accountant for small business, hire a cpa, hire a business cpa, hha business plan & proof of financial ability to operate, healthcare tax accountant, healthcare accounting services, healthcare accounting companies miami, healthcare accountants, health care licensing application proof of financial ability to operate, health care agency business plan, good tax accountants near me, good accountant, gaap organizational costs, finding a good cpa, finding a cpa for small business, find a tax accountant, find a personal accountant, financial statements, financial accounting, does a small business need an accountant, do you need an accountant for small business, do i need an accountants or cpa, difference between s corp and llc, difference between llc and s corporation, difference between llc and s corp, difference between llc and corp, despachos de contadores en miami, despachos de contadores, despachos de contabilidad en miami, despachos contables en miami, despachos contables, declaracion de impuestos, cpa near me for small business, cpa miami florida, cpa miami fl, cpa miami, cpa in miami, cpa firms in miami florida, cpa firms in miami, cpa firm miami, cpa firm, cpa charge per hour, cpa certified professional accountant, cpa accounting, cpa, cost report preparation, cost report medicare, corporate tax, contadores publicos cerca de mi, contadores miami, contadores en miami, contadores cerca de mi, contadores, contador publico en miami, contador publico , contador publico near me, contador publico cerca de mi, contador miami florida, contador miami, contador en miami, contador accountants, contador, contabilidad financiera, condominium association audit, condo association audits, compiled financial statements, compare llc and s corp, companias de contabilidad en miami, cloud accounting miami, certified public accounting firm, certified public accountants, certified public accountant services, certified accountant, capitalizing start up costs, capitalized start up costs, capitalization of startup costs, business plan for home health care, business plan for home care agency, business plan for a home health care agency, business financial accounting, business accounting firms, business accountants, business accountant in miami, business accountant, bookkeeping services miami fl, bookkeeping services in miami, bookkeeping services, bookkeeping professionals, bookkeeping miami, bookkeeping, bookkeeper services, bookkeeper miami, bookkeeper in miami, bookkeeper, best online accountants for small business, best cpa for small business, best business accountants, best accounting firms in miami, best accounting firms for small business, best accountants in miami , best accountant, basic bookkeeping services, basic accounting services, are startup costs capitalized or expensed for gaap, ahca proof of financial ability to operate form 3100-0009, ahca proof of financial ability to operate, ahca form 3100-0009, ahca form 3100, ahca cpa, accounting tax firms, accounting software miami, accounting services miami fl, accounting services miami, accounting services in miami, accounting services, accounting professional, accounting principles miami, accounting miami, accounting in miami, accounting firms miami, accounting firms in miami, accounting firms in florida, accounting firms, accounting firm, accounting and tax services, accounting and tax outsourcing, accounting and tax, accounting, accountants vs cpa, accountants near me, accountants in florida, accountants for small business owners near me, accountants, accountant to help start a business, accountant miami, accountant in miami, accountant for my small business, accountant firms near me, accountant, accountancy service, a public accountant

When Good Tax Planning and Good Financial Planning Collide

When Good Tax Planning and Good Financial Planning Collide

Fresh from year-end tax planning meetings with clients, we’ve identified four areas where great tax planning and great financial planning collide, specifically for people accumulating wealth.

Many rely 100 percent on their wages to fund their lifestyle and are at their peak spending years. They have not built enough wealth for work to be optional yet. The following four areas of tax planning can offer them tax savings opportunities in the right situation, but applied without regard to the rest of the story, can be toxic to their survival.

Roth Contributions/Conversions: The Roth works in only one situation—when a client has no taxable income. The only people in this situation and enough assets to matter are usually retired but not yet 70 1/2. It takes time for the client to undo the brainwashing that has occurred about the benefits of the Roth. Why is the Roth a failure for most? The highest marginal bracket they will ever pay is while they are working. Plus, their peak earning years are also their peak spending years. They need every dollar they can muster and the tax planning help.

Most clients don’t realize the size of the nest egg required to recreate a top income tax earner perpetually during retirement. The projected top marginal rate for married filing jointly in 2012 is $388,000. Tax planning CPA’s assume a 4 percent earnings rate on assets to fund a happy retirement. It would take $9.7 million of assets to get to the highest marginal rate with zero itemized deductions. Few will reach the mark. The Roth calculations also ignore the preferential tax treatment of non-wage earnings which make up the vast majority of a retiree’s income and the desire of states to keep their retirees from moving to tax-free states. Take an example in Georgia. The first $65,000 of regular IRA distributions in 2013 are exempt if they are 65 or older. So anybody in Georgia who chooses a Roth is paying a 6 percent state tax they never have to pay.

401(k) Contributions: Let’s say a client avoided the Roth but took the advice of most articles they read on financial and tax planning: maximize your 401(k). This is toxic advice for most because it converts a liquid dollar to an illiquid dollar. Retirement plans are wonderful vehicles if you’re age 60, but are assets without benefits at 40. Those who survive financial hardships have one common theme: access to after-tax capital. In the financial crisis, how many drained their retirement accounts at a significant penalty to save their homes? Retirement assets take a perfectly useful dollar to a 40-year-old and toss it out the window for 20-plus years.

The tax planning decision to maximize the retirement plan should be multidimensional. Clients should have access to 30 percent of their net worth in after-tax liquid assets. Ask them how big of a check could they write tomorrow if the best opportunity or worst possible thing happened. It is usually a sobering number. Unfortunately, the only way to build an after-tax safety net is to acknowledge the tax costs of not making the maximum 401(k) contributions.

Debt: With interest rates this low,  some bad CPA’s doing tax planning and do it yourself investors are wanting to leverage their home to make investments. Help them say no. Debt is a fixed and unwavering obligation. The probability of the mortgage payment is 100 percent, while the probability of investment success is not. Debt is an after-tax expense with a small rebate in the form of a deduction for the interest paid. Just like a business that takes on debt, it has to pay back the principal with after-tax dollars. Take a person with a $200,000 mortgage in the 33 percent marginal tax bracket in a tax-free state. They will have to earn nearly $300,000 to pay back the principal.

Everyone wants to make work optional, which means they have to create a pool of assets like stocks, bonds, or real estate that produce income to pay the bills. Someone without a mortgage can earn less money and be as happy as a person with a mortgage. Lowering the cash flow required to support happiness is invaluable. Take a $200,000 mortgage at a 3 percent rate. The payment on a 30-year mortgage is $900 per month or $10,800 per year. Clients ask advisors to generate enough investment income to cover their expenses.

An investment that pays 4 percent interest would need $270,000 to cover the payment with one problem: the IRS sits between the interest income and the mortgage payment. Using the same marginal tax rate, the client nets 2.68 percent in after-tax dollars. The client really needs $403,000 of assets dedicated to paying a $200,000 mortgage. They get a small rebate on the tax return, but they still have to spend a dollar to get the deduction. It would make more sense to eliminate the mortgage and have $203,000 invested instead.

Tax Planning for College

College Funding: The 529 plan, like the 401(k), is a great vehicle if a client has achieved personal liquidity goals. If not, they are making the exact same mistake, converting a dollar that can be used for anything to a dollar that can only be used for one thing. Many clients like the peace of mind of money being saved for college, but they also like having no debt and having a backstop against uncertainty. Since after-tax money funds the 529, the best tax planning suggestion is to save the money personally. It maintains maximum flexibility. Clients risking today to fund an unknown tomorrow is never a good idea.

Tax planning and tax savings don’t come cheap and they require either giving up or giving away assets for a period of time. As you meet with clients this tax season, open the discussion beyond the tax return, and explore tax planning strategies that will yield a maximum ROI. It will make you more valuable to your clients and help them make better financial decisions.

Welcome to the Gutenberg Editor

The goal of this new editor is to make adding rich content to WordPress simple and enjoyable. This whole post is composed of pieces of content—somewhat similar to LEGO bricks—that you can move around and interact with. Move your cursor around and you’ll notice the different blocks light up with outlines and arrows. Press the

Read More »