Ep 4: What Is Tax Planning?

May 6, 2021

What is tax planning? Every spring, you do your taxes before the April 15 deadline (or May 17 in 2021) and might think that covers it. How is tax preparation and tax planning different?

Your CPA or tax preparer is more of a historian who looks back on the previous year to find out what you did. The taxes can then be filed accordingly. Whereas when you’re doing tax planning, you’re looking toward the future. This gives you the macro-view of your taxes. Right now, we know that the tax laws put in place currently will go away automatically in 2025 unless something is done in Congress to carry it forward.

On today’s episode of the podcast, Troy and Alan share examples of clients they have worked with to do tax planning. How does it start and what questions need answering? Some people assume they will be in a lower tax bracket in retirement, but many still have the same needs to carry on their lifestyle. Because of this, their retirement income and therefore their tax brackets often stay the same. What happens when you have to start taking out required minimum distributions?

Finally, have you considered your tax implications in regards to the assets you will later pass onto your heirs? It’s important to sit down with an advisor to get a plan on the best way to do this for you and your family. Advisors are there to let you know what kind of risk and fees are in your portfolio, and then dive in to ask if you will be successful in retirement. What can be improved? How can tax planning improve your situation?

Listen to the entire episode or use on the timestamps below to skip ahead to a particular question.

1:53 – What is tax planning?

4:33 – What does tax planning actually look life with clients?

7:21 – Is it safe to assume you’ll be in a lower tax bracket in retirement?

10:26 – Why not just take the money out?

12:03 – What do we need to think about with taxes and legacy?

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