Now that tax season is over for most, I have a question for you:
Have you ever heard your “financial advisor” say to you that he/she can’t provide tax advice and then goes on to suggest that you contact your tax professional for specific tax help?
If this has happened to you it is probably because the broker/dealer who oversees the financial advisor (sales rep) tells them not to give tax advice – too much liability! But, how can a legitimate financial advisor NOT consider the tax return when they are delivering investment advice? It is impossible – the two are so tightly interwoven.
Let me provide just a couple of examples:
1. Dividends – qualified dividends are taxed at 15% for anyone up through the 35% tax bracket and 0% for those in the 10% and 15% bracket. Yes, 0%! But, ordinary dividends and interest earnings are taxed at ordinary tax rates, which leads me to my next point.
2. If you are in the upper income brackets you might consider getting your dividend producers into your retirement accounts (403b’s and IRA’s) and the growth asset classes in the non-IRA especially if your income is expected to drop to take advantage of favorable capital gains rates. Tax location planning is a strategy to reduce investment earnings taxes.
3. Capital Gains are taxed just like qualified dividends. So, remember to take advantage of selling appreciated capital assets if possible when you are in a lower tax bracket.
4. Remember, to keep track of your capital losses as well. They can be used to offset future capital gains.
5. Don’t be in a rush to transfer the assets of your elderly parents into your own name to “save taxes”. Many times you are creating more taxes by doing so. Understand the tax implications BEFORE you do any buying or selling.
And, one last point, if you are in a relatively low tax bracket, and the “financial advisor” recommends a variable annuity, you will know that “financial advisor” is probably a sales rep who can’t give you specific tax advice! Are you starting to get the picture?
Contact us if you would like us to help you audit your tax return and look for opportunities to reduce your taxes.
