Tax Planning
Ever
wondered why you had to pay Alternative Minimum Tax (AMT)? Have you
considered buying tax-free Muni bonds but need advice on how to avoid
ones with AMT income tax? Tried to get a
tax deduction with a huge mortgage only to be told the deduction is not
allowed on the 1040 income tax form? Tried to buy a rental (investment)
real estate property in
hopes of getting a tax deduction and then found you could not deduct
the losses? Found that you had to pay extra income tax because of
mutual fund
"distributions" for capital gains that you never got? Paid extra
capital gains income tax
because an investment owned over a year did not qualify for the 15%
Long Term Capital Gains rate?
Planning for income tax is something
that should be done in
concert with planning for investments, designing an estate plan,
education planning, retirement cash flow planning. There are tax traps
that cost
investors money. For example: getting a capital gains distribution from
a mutual fund that is going down in value, losing capital gains
treatment for assets in IRA's, buying allegedly tax-free Munis only to
find that they have AMT tax, getting a big mortgage on their residence
and then finding later that the interest deduction is not allowed for
cash-out refinances exceeding $100,000 over the original purchase
mortgage, buying rental real estate with a negative cash flow and then
being denied the tax deduction because AGI was too high, using borrowed
money to fund a money losing business and then having the tax deduction
denied due to basis rules, paying higher than expected tax on capital
gains for commodities and collectibles.
When
someone has a large employee stock option, planning for it is best
done using integrated financial planning instead of looking solely at
either
taxes or investment strategies. When someone suddenly cashes in an
enormous
option that means they may now need advanced estate planning using
irrevocable
trusts, ILIT's, FLP's. They need to plan for a reversal of fortune
where
their
newly acquired shares (after they exercised the option) may carry a
huge risk
of sudden irreversible loss of wealth. The client needs to plan for
income tax, AMT, proper diversification
without giving up
too much of his beloved stock, retirement cash flow planning.
There are many
reasons why a financial plan can help
prepare you in advance for income tax.
Mayflower Capital
Donald
Martin, CFP®
1000 Fremont Ave.
Ste.
135
Los
Altos,
CA 94024
(650) 949-0775
Don@mayflowercapital.com
Donald
Martin is a Napfa
registered fee-only financial planner and investment advisor.
