Your Tax Picture Has Changed. How About Your Financial Strategy?

Your tax picture has changed. Is your financial strategy keeping up?

Last year, we had some major changes in the tax laws.

As a result, many expenses that were deductible in prior years – like state taxes, mortgage interest, and professional expenses – are now totally eliminated or only partially deductible.

So here’s an important question.

Given those significant changes, have you given a once-over to your financial plan to make sure your strategy still makes sense in today’s tax environment?

Lately, we’ve been reviewing many of our clients’ 2018 tax returns. We’re able to go in and perform a quick financial tune-up to ensure their financial goals and investment strategy are still in line with current tax realities.

Here’s some of the issues we’re finding, and how we’ve been able to help clients update their plans to adapt to the new tax environment.

Time for a mortgage payoff? Many people who used to itemize deductions now take the higher standard deduction. That means their mortgage is no longer providing any additional tax relief. We just did an analysis for a client who wanted to pay off the mortgage and be debt-free. We found a way to redirect under-utilized and under-earning cash reserves to eliminate the mortgage, and save thousands in interest costs. A cautionary note: paying off the mortgage is not always a good idea (see our earlier article on “Should You Pay Off The Mortgage?”) It depends on your personal situation, and paying off a mortgage without doing the proper analysis can be a huge mistake.

Looking for new deductions? You would be surprised to learn how many people could instantly cut their tax bill by contributing more to their own retirement accounts. We work very effectively with our clients’ tax advisors to help set up new retirement plans as needed, so clients can maximize their tax deductions and grow their retirement balances as fast as possible. These are still some of the largest tax-advantaged deductions out there, and for people who are behind on their savings, it’s a sure-fire way to morph from retirement-zero into retirement-hero in next to no time.

Finding the right mix. To find the investment mix that’s right for you – meaning the right combination of stocks, bonds, and tax-exempt investments, as well as the right techniques and strategies – we need to fully understand your tax picture. Usually, that means reviewing your business and personal tax returns, and weighing how your assets are distributed between retirement and non-retirement accounts. Some people don’t like to share their tax returns. We get it. But that’s like asking a doctor to perform surgery wearing a blindfold. We want to make sure you achieve the best results. To do that, we need accurate and complete data.

Pay now, save later. This may be a great opportunity for you to get more money into a tax-free Roth account via new contributions, conversions or other back-door methods. We just wrote a blog article on how to stuff your retirement nest egg with tax-free assets. What’s the payoff? In return for paying some taxes now, you, and your heirs, will enjoy tax-free growth and have access to tax-free withdrawals in the future. That could be an unbeatable deal.

Do a good deed. If you’re old enough to take Required Minimum Distributions (RMDs) from your IRA, you can help others and cut your tax bill at the same time by giving those IRA withdrawals directly to your favorite charity. This can be a great tax-saving technique for people who are charitably inclined.

The Takeaway: Current rules do make it a little harder to capture those elusive tax deductions, but a knowledgeable financial advisor (preferably a Certified Financial Planner™, or CFP®) can make sure your tax and portfolio strategy keep up with the times – and keep you ahead of the game. If no one is taking a comprehensive look at your portfolio and tax situation, it may be time for you to make a change.

About Mari Adam

Mari Adam, Certified Financial Planner™ has been helping individuals and families chart their financial futures for over twenty-five years. Have a question about your financial situation? Ask Mari!

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