Broker Check


Tax Season

| April 11, 2016
Tax Issues

Tax season is in full swing and for once, there is some good news. The good news is that, due to the Washington D.C. Emancipation Day paid holiday, you have until April 18th this year to file unless you file an extension. The bad news is you still have to file. So in keeping with that, we thought we would take this week to share with you the 3 biggest “unnecessary” tax liabilities we have seen from 2015 as well as a few jewels we found that may help you lower or even eliminate these problems.

#1….Let’s start with a gut wrencher: Imagine you accumulated $150,000 in itemized deductions (mortgage interest, charitable gifts, other taxes, medical expenses, investment expenses, etc.) you are planning to use for 2015 - and realize you are only able to deduct $30,000 come tax time. This little “gotcha” called the Pease Limitation Phaseout could come at a cost of up to $52,080 in taxes. Based upon taxpayer earnings, this is where above the line deductions (those deductions taken on the first page of the tax return) are important. Here are just a few:

-Retirement contributions (Did you know you can contribute up to $210,000 in 2016?)
-Health Savings Accounts (Did you know this is one of the few places you may NEVER pay taxes on your money?)
-Send your Required Minimum Distributions straight to a charity (Did you know this strategy will avoid your RMD even showing up on your tax return?)
-Investments (Did you know Section 263 of the tax code allows deductions of 100% of intangible expenditures of drilling, which is usually 65-80% of the cost of the well? Then, there is the other little bonus of 100% of tangible drilling costs which can be deducted as depreciation over a seven-year period.)
-Your Business, Farm, or Ranch (Did you know you don’t have to buy something to create a tax write-off?)

#2…Since your gut is in a knot anyway, let’s visit another 5 figure ouch we saw on a tax return last year: Any investment advisor should be aware of the tax issues most mutual funds face today. Due to the markets’ assent over the past 6 years, mutual funds have not had much in the way of losses to offset gains. Thus, they are passing their gains along to the investors via a “capital gains distribution.” In many cases this cost was completely unnecessary in 2015. In fact, 2015 was an opportune time to sell some of these funds, take or harvest losses (which could have actually lowered your tax liability) and avoid the capital gains distributions.

#3…For the final “unnecessary tax liabilities” qualifier you shouldn’t expect anything less than another 5 figure mark on your checking account: The Affordable Care Act is paid in part by a 3.8% net investment income tax. This tax is applied to the lesser of net investment income or the excess of income (MAGI) over the relevant threshold ($200,000 if you are married). The key here is the “lesser of.” Just a little planning might be able to take this tax from a 5 figure mark to lunch money.

Complicated? Yes! After all, Albert Einstein said the income tax was the hardest thing in the world to understand… and that was in the 1950s. Two out of three of these tax liabilities didn’t even exist then. If you don’t understand anything about the tax code, just remember taxes are often voluntary. The key is planning out how not to incur them. For the month of April only, take advantage of our Tax Planning S.O.S. (second opinion service) at no cost to you. Call us or email us at 254.629.3863 or