Tax time has a way of making us resolve to save taxes going forward. But that inclination feels a bit like the story about horses and barn doors. It is also situational, but our tax saving actions should be year round and part of a planned and replicable program.
Tax saving strategies, in addition to being part of investment management, should consider all forms of taxation to include federal and state income tax, capital gains tax and estate and inheritance tax. That is a lot, and most people are fully challenged with their occupations, avocations, family responsibilities and recreational and charitable interests. All the more reason to create and utilize your personal board of directors, which should include your accountant, attorney and financial advisor.
Tax Loss Harvesting
First, with regard to federal and state income tax, consider how crucial it is for your accountant and financial advisor to communicate between themselves on your behalf, and with you. Your investments may offer the chance to lock in a gain or a loss. While the motivations for that security sale will be primarily investment consideration driven, it can add meaningfully to your profit or help offset your loss if the action is taken in conjunction with other gain or loss recognition. That’s why it is important for your accountant and financial advisor to be freely conversant with each other. Your advisor may not have ready access to other investment information that resides with your accountant, for example, a piece of real estate where gains and losses can be paired. On the contrary, your accountant may not be conversant with the gain/loss situation in your securities portfolio. Connecting that knowledge may mean considerable tax savings.
Estate Planning Tax Implications
With federal estate and state inheritance taxes, your attorney, accountant and financial advisor can work together to help fashion your unique approach to saving death taxes and other attendant fees. There may be a reluctance to run up billable time with your accountant and attorney, but consider how much more expensive death taxes are than your professional advisors’ hourly rate. It is worth the effort to be sure you’ve thought of everything and have a coordinated and efficient plan in place.
A Harmonious Approach
While you may feel you are the glue that is holding all of that knowledge together, our experience says that often isn’t true. Further, once you are removed from the scene, your knowledge contribution goes away. Your spouse and grown children, along with your board of directors, can help assure that your wishes are fulfilled and your assets are preserved to the fullest extent possible.
We, at Fragasso Financial Advisors, have built this board dynamic into our client experience. That’s why your advisor here seeks to accomplish the actions we have described. Work with your Fragasso advisor to provide yourself, your assets, your estate and your beneficiaries with the full measure of benefit that can be available with a smoothly functioning board of directors.