DON’T FRIEND YOUR ADVISOR/CPA IN DECEMBER

“…They say it’s not how much you make, it’s how much you keep….”

My father emphasized this point when I was growing up and many people agree with this philosophy. The first, and for many individuals, the biggest impact on take home income…… is taxes. However, as we approach the end of the year, there will be a flood of calls to financial advisors and accountants on how to reduce taxable income or Adjusted Gross Income (AGI) by maximizing deductions and credits. To use a baseball analogy, it’s very tough to score 3 runs in the 8th and 9th inning. Or to expect a car to run smooth without regular oil changes and maintenance. A person who is proactive in their tax aware financial decisions can effectively keep more of the money they earn. Many times, life changes cause how we approach our financial picture. Our income fluctuates, we buy or sell a house, own a business, or have children enter or leave the household. All these pieces are important to effective financial planning. How do you adjust to these changes? Tax effective investment should be integrated into an individual’s overall strategy. For example, individual stocks and/bonds, mutual funds, exchange traded funds, annuities, and life insurance all have different tax ramifications and should be carefully coordinated for each individual. Broad assumptions that one investment type is better than another is similar to stating a car is better than a truck. It depends on the purpose. If the investment strategy does not take into consideration the tax ramification, the investor may leave some part of their gain with the tax man. Investment decisions on assets in taxable accounts consider the difference between long term capital gains tax rates and short term capital gains tax rates. Even for accounts that are not taxed until an investor the choice of the investment vehicle relies on when the assets are withdrawn out of the account. Good advice beforehand is often worth it’s weight when it comes to making important decisions. Give your financial advisor and CPA’s a break.

– Talk throughout the year with your CPA/advisor/planner.

– Ask about the tax efficiency of your investments.

– Communicate big decisions such as home purchase and retirement.

And you may be able to have more money after taxes.