Date: October 19, 2020

Why Tax Planning Should be a Crucial Part of Your Financial Plan

Many people are unaware that with a few simple questions, methods and best practices, you may be able to lower your taxes significantly.

Tax planning strategies are an important step in the financial planning process, but it’s often an afterthought in investing. Even very competent tax accountants can be more reactive than proactive, simply because they aren’t familiar with your entire financial situation. This all equates to lost opportunities for saving you money, which is why it’s really important to talk with your financial advisor about your taxes.

In fact, taxes should be a part of almost every financial conversation you have about your future. Talking to your financial advisor about ways to save on taxes can ultimately allow you to invest more efficiently. Finding tax savings and implementing tax-efficient investing strategies are some of the few ways to get more return without taking on more risk. Why wouldn’t you want to take advantage of that opportunity?


Looking for a financial advisor who can offer tax planning help? Contact Paradigm Financial Advisors to see how we can help.


Taxes and Your Retirement Plans

There are several types of retirement plans to choose from, and each plan brings its own benefits. But the decision to pay taxes upfront on investment contributions vs. decades later is arguably one of the most significant deciding factors when picking a plan.

One of the main reasons a Roth IRA is chosen over a Traditional IRA, for example, is the fear of increasing tax rates. Some people would rather have the current tax rate withheld from their Roth contributions then leverage a Traditional IRA and worry about paying taxes in retirement.

This seemingly small decision can have a big effect on your financial future. If you’re already contributing to a retirement plan, talk with your financial advisor to see if it’s the right one for you. Converting your Traditional IRA plan to a Roth IRA now can potentially allow you to take advantage of a lower tax bracket for the year and help you save money in the long-run. Making the right contribution amount can also have a major effect on your future.

Taxes and Your Spending

Other tax planning examples include the timing and paying of business expenses and recording of business income. For example, business owners may be able to delay the billing or depositing of collected client funds until the first business day of the new year. One day can make a big difference.

Of course, there are restrictions to doing this. Make sure you discuss your situation with a financial advisor.

Qualified Charitable Donations (QCDs) is another tax planning tactic to implement. A QCD is a direct transfer of funds from your IRA to a qualified charity. In addition to the benefits of giving to charity, a QCD excludes the amount donated from your taxable income, unlike regular withdrawals from an IRA that are taxed. This strategy allows you to help those in need while also receiving a tax benefit. Your filing status plays a crucial role in your limitations and thresholds.

In addition to maxing out contributions to retirement plans, contributions to your children’s 529 plans and Uniform Transfers to Minors Act (UTMA) accounts are other options to explore.

Taxes and Your Estate

Tax and estate laws differ from state to state, but taxes can most definitely affect what you plan to leave behind when you’re gone no matter where you live. At Paradigm Financial Advisors, we help many families with their multigenerational estate planning. And taxes are always a factor.

Not only do we help clients establish an estate plan to avoid probate, but we help them protect the assets they intend to leave behind. Our team has extensive experience designing and implementing advanced estate planning strategies that help our high-net-worth clients maximize the amount of wealth that they transfer to their loved ones. At the same time, these strategies can help ensure that the assets will be protected for many generations to come. This can include:

  • Revocable Living Trusts
  • Dynasty Trusts
  • Family Limited Partnerships
  • Grantor Retained Annuity Trusts
  • Charitable Remainder Trusts
  • Intentionally Defective Grantor Trusts
  • Asset Protection Trusts

Taxes and Your Financial Plan

April (or in the case of 2020, July) isn’t the only time that taxes should be a priority. There’s actually a lot that your latest return can tell you about your future. And if you use your return as a financial planning checklist, you can be that much further ahead for next year.

Here are other things you and your financial advisor should continue doing after the tax-filing deadline has passed:

  • Run tax projections to help you estimate your tax liability and determine if you need to adjust withholding or estimated tax payments
  • Look for tax-loss harvesting opportunities in your taxable accounts to help reduce or eliminate future capital gains taxes
  • Develop tax planning strategies to help you save on taxes now and in the future
  • Implement tax bracket maximization strategies, such as taking early distributions from an IRA account or a partial Roth conversion, that may increase your taxes today but save more over time

There are also tax planning strategies specific to business owners. At Paradigm Financial Advisors, we help our business owner clients structure the sale of their business in a way that maximizes their net return. For example, if a client is negotiating to sell a business, we’ll work proactively with them to analyze ways to structure the sale so they pay the lowest amount of taxes.

The Bottom Line

Everyone’s financial situations are different. Their family structures are different. Their concerns are different. But taxes are always a factor.

Discuss your options with a financial advisor and make your money work harder for you. If you’re looking for a fee-only fiduciary financial advisor, contact us to see how we can help. Paradigm Financial Advisors was one of the first fee-only fiduciary firms serving business owners, professionals and families in the greater St. Louis area. We bring financial planning, investment management, estate planning and tax planning together to help you and your family achieve your financial goals.


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Jim Reding

Jim is CEO and Managing Member of Paradigm Financial Advisors LLC.