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5 Tax Planning Questions We Help Our Clients Answer


No one likes taxes, but everyone recognizes they’re a necessary evil.  With that said, there’s no reason to pay any more than you have to. 

Most people might believe that taxes should be left to the accountants.  At Lawrence Financial Planning, we believe that most tax returns should be prepared by a tax professional.  But we also believe there are many tax-related things a financial advisor can (and should) do for their clients.  That’s why we help our clients each year with tax planning 

In the course of that tax planning, our clients ask many tax-related questions.  Below are five of the most common tax questions our clients ask and how we help address them. 

Question #1:  What can I do to lower my taxes (or keep them as low as possible)? 

This is probably the most common tax-related question.   

This often comes up under the topic of retirement planning, particularly with clients who have just retired or are planning to retire.  It seems that many people don’t focus too much on minimizing taxes while working, but they really start paying attention to their tax bill when they retire. 

Either way, we’re always looking for ways to lower taxes.  Sometimes, we see situations where a client could be making a tax mistake, like improperly rolling over a 401(k), which we can help them avoid. Many times, it’s as simple as just avoiding financial events that cause a tax bill, like selling stock you don’t need to.  Sometimes, we look closer into a client’s life to try and find a more tax-efficient way to do something that’s really important. 

For every client, we see their financial picture from a tax perspective, and strive to always find the most tax-efficient recommendation that suits their needs.  In our experience, this is necessary for anyone who is truly interested in minimizing their taxes. 

Question #2:  What will my tax bill look like this year? 

This is a natural question for most people.  Even if not much has changed, the vast majority of people are at least a little concerned about whether they’re going to owe money at tax time, or if they’re going to get a refund.  And really, that’s the question they’re trying to get at even if they ask, “What will my tax bill look like this year?” 

We actually try to help people answer this question—how much in taxes will I pay?  If nothing else, it helps us set the conversational tone for many of the other questions.  After all, without knowing how much in taxes you expect to pay, you can’t really answer any of the other questions outlined here. 

For each client, we perform a tax projection based upon: 

  • Previous years’ tax returns 

  • Current income information (such as pay stubs) 

  • Transaction information (such as IRA distributions or securities sales) 

That way, we can actually see how much the client’s tax bill is expected to be during our tax planning appointment.  We can also make any adjustments that the client feels are necessary—either for expected taxable events, or for transactions we might not have been aware of.   

Either way, our tax projection allows the client to preview everything while there is still time to make changes—instead of during tax season, when it’s too late to do anything but sign the tax return.   

Question #3:  Am I withholding too much or too little?  

Another version of this question is: “Am I getting a refund, or will I owe money this year?”  Some clients might say that this is the number one question.  However, we can’t really figure this out until we have a pretty good idea of what the answer to Question 2 is. 

Our goal is to ensure that our clients know whether their tax payments are on track.  Ideally, each taxpayer would file a tax return showing $0—indicating they neither owe money nor do they expect a refund.   

Of course, that’s not realistic for most people.  You’re probably not going to be exactly on the mark.  But if your guess is too far off, you could either: 

  • Owe a ton of money at tax time, which could present a cash crunch.  Also, underpayment of taxes could lead to penalties by the IRS. 

  • Get a huge refund.  This might seem good at the time.  However, it really indicates that you’re getting money back that you could have had the whole time. 

That second point is very important for people who happen to have cash flow issues—making those adjustments might lower your refund but give you more money each month. 

By laying all this out there, our clients get a good feel for what’s to come and the opportunity to discuss what changes they’d like to make before the end of the year. 

Question #4:  Are my taxes going up or are they going down? 

Another version of this question might be: “Are my taxes higher than last year, or lower?”  This makes sense, since everyone wants to see a downward trend.   

When we build our tax projections, we’ll usually go back 2 tax years (if we have the client’s tax returns), so we can look at any trends.  For example, a 2019 tax projection would also have tax information from years 2017 and 2018.   

Why do we do this?  Because peoples’ income changes over time.  Sometimes, it’s obvious, like when you retire.  Other times, the change might be subtle, like when several years’ of slight pay increases pushes you into a different tax bracket.   

Keeping track of these trends is especially important when you face significant financial decisions, which might impact your tax picture.  

Question #5:  How does _________ event affect my taxes? 

This could be anything—either a decision (where you have a choice), or an event (which you might not have control over).  Either way, people usually want to know the tax impact. 

If there’s a decision to be made, taxes might play a role.  Not always (you wouldn’t turn down a promotion at work simply because your taxes might go up).  However, you might turn down a $20,000 per year promotion if you had to move from Florida to New York and pay $5,000 per year in extra taxes. 

Sometimes, an event occurs and you simply would like to know what the tax impact is.  It doesn’t change the outcome, but you might need to make adjustments (like changing your tax withholdings) to ensure you’re on track. 

All of our clients know that our tax planning is not one-directional.  While we might give a tax projection during a client meeting, we’re always trying to make sure that we’ve got as much information as possible.  And that includes being able to understand possible decisions and events so we can give the right tax advice. 

Conclusion 

If your financial advisor doesn’t discuss taxes with you each year, you should ask them to help you.  And if they don’t help you, find a financial advisor who offers tax planning as part of their services. 

And if you have to look elsewhere, let us know.  We’d be more than happy to see how we might be able to serve you. 


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