With the 2024 tax season behind us, now is an ideal time to share a copy of your federal and state tax returns with your financial advisor. As an advisor at Carson Wealth, having a recent copy of a tax return enables our team to help optimize each client’s specific tax situation, and leverage short- and long-term tax planning opportunities.
Tax planning is a major part of the financial planning process at Carson Wealth. We believe in a holistic planning approach rather than investment management only. Reviewing tax returns are an essential part of this process since it allows us to better understand our clients’ financial picture, collaborate with their tax professional, and helps us prepare and advise certain tax strategies for the upcoming year.
Our tax return review process
First and foremost, we want to reconcile any tax planning strategies that were implemented for each client, and confirm the outcome was as expected. Occasionally costly tax preparation mistakes are uncovered stemming from miscommunications or misunderstandings.
For example, charitable planning strategies can be missed. For those clients that are age 70½ or older and gifting from their IRA using Qualified Charitable Distributions (“QCDs”), we can verify that the gifts are properly treated for maximum tax savings. Gifting appreciated securities can also be an advantageous charitable tax planning strategy. Since most clients that utilize this strategy gift from their accounts under Carson Wealth’s management, we are able to validate the tax reporting on these gifts.
Roth Conversions are another commonly used tax planning strategy at Carson Wealth Planning. We can add value by monitoring and planning for years with little or no income. During these years, a Roth IRA conversion strategy can convert Traditional IRA assets to Roth IRA assets. By accelerating taxable income from a Roth conversion while in a low income tax bracket, you and/or your beneficiaries could benefit from one or more lifetime of tax-free growth.
A Roth conversion can also have the impact of minimizing Required Minimum Distributions (RMDs) which can significantly reduce one’s tax liability throughout retirement.
Once we reconcile all prior year strategies, we want to ensure that the appropriate amount was withheld for the year and look toward the following year’s plan.
Whether there is a tax refund or tax due, we have the ability to change any future tax withholding from IRA distributions or determine how much and if estimated tax payments should be made for the following year in order to meet Safe Harbor. We may not recommend the same tax planning strategies each year, so at times the estimated tax payments that are recommended may not be appropriate if there is a change in circumstance from one year to the next.
Much of the tax planning strategies rely on managing the marginal tax bracket. From determining the rate at which long-term capital gains are taxed to whether the 3.8% Medicare surtax will impact the overall tax liability, it is extremely beneficial and necessary to know your marginal tax bracket.
The tax return may also inform us of a capital loss carry forward. This may permit us to recognize tax-free portfolio rebalancing and profit taking decisions.
Lastly, if there are changes to the tax code, by having our clients’ tax return, we can be better equipped to make decisions that may be impacted by those changes.
Always send your tax returns securely
Anytime you are asked to share sensitive information, such as your tax return, we strongly suggest delivering it in a secure manner.
Specific ways to send to your advisor at Carson Wealth are:
- Send an electronic copy (.PDF or TurboTax) to us at https://carsonwealth.egnyte.com/ul/qV1EnsGkvB
- Ask your CPA to securely send to us via email, or upload at https://carsonwealth.egnyte.com/ul/qV1EnsGkvB
- Stop by the office and we’ll scan a copy while you wait
The views stated in this article are not necessarily the opinion of CWM, LLC. and should not be construed directly or indirectly as an offer to buy or sell any securities mentioned herein. Information is based on sources believed to be reliable; however, their accuracy or completeness cannot be guaranteed. Converting from a traditional IRA to a Roth IRA is a taxable event. For a comprehensive review of your personal situation, always consult with a tax or legal advisor.
