I am amazed at the media at or around April 15 attempting to explain that there are actual significant tax savings available at this late date. Yes, there are some minor tax savings, but most of the damage has already been done and there is no actual value in trying to reduce your tax bite at this time. Proactive tax planning is what you need.
THE REALITY IS THAT MORE TIMES THAN NOT, INDIVIDUALS PAY EXCESSIVE TAXES.
People pay excessive taxes on many things, such as retirement assets. Taxpayers also run into liquidity problems due to lack of cash flow. Taxpayers do not take advantage of any significant tax harvesting opportunities that are available only at the end of the year.
THIS IS WHAT I CALL REACTIVE TAX PLANNING.
On the other hand, proactive tax planning is deferring and flat out avoiding taxes by taking advantage of beneficial tax law provisions, increases in accelerating tax deductions and tax credits and generally making use of all applicable breaks available under our internal revenue code. Proactive planning might seem complicated and costly but in reality the time and cost is well worth it in terms of value. It is just a matter of sitting down or working with a qualified tax professional throughout the year, and no it is not done in one day, on December 31. This is a process, a process whereby the planner really understands not only your finances but more importantly your lifestyle. It makes no sense to develop a plan if someone makes financial decisions first before consulting with their planner afterwards.
Over my 20 years of experience in the tax and financial business I have learned that many individuals assume that their tax professional or CPA is actually doing proactive tax planning. Don’t assume this, because they are probably not. The process involves a review of all applicable tax returns for the past two years, including personal, business, and real estate returns. Often times a simple review will indicate mistakes that have been made and the potential for tax savings opportunities.
With a limited time commitment from yourself and no actual dollars being spent for the review, an actual amount of tax savings can be quantified. With this tax review in hand, you will know where you stand and if you wish to proceed developing an actual tax plan. The plan will highlight possible entity selections, retirement plans, cost mitigation strategies and so on and so forth.
I could go on and on about the potential tax savings strategies, however the real value is in an on-going, proactive tax planning approach.
So remember at or around April 15 when your favorite radio station or TV station passes along tax strategies to save you thousands . . . realize that it is too late!