Every year, April brings warmer weather and a reminder of our taxes – we’ll let you decide which one you look forward to more. The irony is that the decisions you make throughout the year inform what kind of tax experience you have each April. The key is knowing which decisions have tax implications.
If you’ve worked with our team, you may have heard the term “eyes wide open” on the topic of taxes. It’s a favorite saying for advisor Stephen Korving.
An “eyes wide open” approach to taxes can mean different things. Here are a few examples.
Anticipating Tax Impacts
There can be a notable delay between when a decision is made and when you realize its tax impact. It’s not like touching a hot stove and immediately realizing it. Without guidance, it’s not terribly uncommon to make tax mistakes and not realize it until much later.
One example that we see typically affects families nearing retirement who have accumulated company stock from their employer many years.
It’s fairly common for these families to be nearing retirement and only then come to the realization that too much of their portfolio is concentrated in their employer’s stock. Some might try to diversify as quickly as possible, and in doing so, create a massive tax liability by selling off a large portion of that position.
If you are not familiar with the implications of this decision, you could be facing an unwanted tax bill. This is where it pays (often literally) to talk through these questions and plan for distributions from your savings with your advisor, both years in advance of your retirement and while you’re making your retirement decisions.
Identifying Your Options
Another aspect of “eyes wide open” is that there isn’t always a decision that’s clearly the best for you. When options are similar, it can be enormously helpful to talk through the tradeoffs of each option with your advisor.
The net monetary outcome might be similar in each case, but other details like retirement timelines, risk tolerance, or charitable goals can highlight which decision is best for you.
How to Make the Most of Tax Season
If you’re already one of our clients, we highly encourage you to reach out as you walk through the tax return process. We are happy to collaborate with our clients’ tax professionals to help make sure you’re making informed, tax-aware decisions that will keep as much of your hard-earned money in your pocket as possible.
We are here all year to help think through some of your tax questions, but we all get a reminder in March and April as we work through the tax filing process that we should plan ahead for next time. We welcome the opportunity to serve you in this way.