Picture this: You're at the pearly gates of financial heaven, but instead of Saint Peter holding a ledger, you've got Uncle Sam with a calculator in his hand. Before you get in, he’s going to add up everything you owe. For those of you that have done a decent job of saving in your retirement accounts, the cost of entry may be a mighty cross to bear. But what if I told you there's a way to baptize now and avoid that hefty tax bill later?
Tax Planning: Avoid the IRS's "Dirty Dozen" Scams
“…in this world nothing can be said to be certain, except death and taxes.
-Ben Franklin
Taxes are an unavoidable problem, as observed by Ben Franklin in his November 13, 1789 letter to French physicist Jean Baptiste Le Roy. However, many would consider taxes to be of the "high-class problem" variety, although they are a challenge frequently faced in my wealth management profession. One typically must have enjoyed earning some income or a gain on an investment in order to be on the hook for taxes. Indeed, most people should prefer to pay higher taxes as higher taxes are often associated with greater wealth.
However, even with the knowledge that paying taxes is a "problem" resulting from good fortune, most investors are open to ideas that lead to reduced tax payments. Retirement account contributions, Roth IRA conversions, tax loss selling, gifting, and asset location are just a few of the tactics we commonly employ to reduce, defer, or even eliminate tax obligations. When done systematically, we can often demonstrate how those savings materially improve our clients' financial outcomes.
Unfortunately, scammers can take advantage of our preferences to avoid taxes. Each year, the IRS publishes a “Dirty Dozen” list of the most prevalent tax scams that can ensnare even the most financially savvy investors.
Death, Taxes, and Death Taxes
…in this world nothing can be said to be certain, except death and taxes.
— Ben Franklin
The quote above, attributed to Ben Franklin, is a well-known excerpt from a letter to French scientist Jean-Baptiste Leroy in 1789 where he discussed the new Constitution that had recently been adopted in the United States.
President Joe Biden has proposed plans in his first few months in office that may pair those events even more so than Franklin may have imagined.