Tax season is over! For most people this means that they are not going to think about their taxes again until the following year. While we at Shaw & Associates totally understand why most people think this way, it is important to understand that many tax planning opportunities can be lost if you do not sit down with your CPA before the year ends, and preferably sooner in many situations. To help you better understand how simple analysis can turn into significant tax savings, here are two current situations we encountered that generated tax savings.
In scenario #1, many people do not understand that if your marginal tax bracket is 15% or lower, then you can generate capital gains from your investments that may be taxed at 0% (yes that is not a misprint). In 2013 we met with a new client who asked us to review their tax situation. We determined that in their situation they could generate up to $50,000 of capital gains from their portfolio without incurring any more federal income tax. At a 15% capital gains tax rate, this equated to $7,500 of tax savings. Had they waited until tax season to ask us to review their information, this savings would be lost.
In scenario #2, we have a retired client who has several IRA’s that she is required by IRS rules to take minimum distributions from since she was over the age of 70 ½. She really has no need to take distributions from these accounts, so she only takes the minimum. However, since it is likely that a significant amount of the IRA’s will eventually be inherited by her beneficiaries, we looked through to the beneficiaries to determine when would be the best time to take distributions. Since she was in the 15% marginal tax bracket and the beneficiaries were in tax brackets of 25% or higher, she could take additional distributions each year up to the top of the 15% tax bracket, thereby saving at least 10% on the extra distributions when compared to what they would be taxed if the beneficiaries took the distributions.
Of course all situations are different. That is why it is so important to talk to your CPA. We would be happy to meet with you or anyone that you believe could benefit from this type of analysis. Please remember that outside of tax season, Shaw & Associates offers a free initial consultation for new clients. As a matter of fact it was during one of these free consultations that we discovered the situation in scenario #1 above! So please contact Cassy to schedule an appointment at email@example.com if you would like to review your tax situation.