Strategy – Advisor Success Academy

Strategies

Many people assume that their CPA or accountant gets them every possible tax deduction. But this assumption is incorrect.

Tax Reduction Strategies

Financial and tax reduction planning involves a diverse array of strategies aimed at effectively managing wealth while minimizing tax liabilities. Below is a broad (though not exhaustive) overview of approaches, ranging from traditional methods to advanced and highly specialized techniques

Income Tax Planning

Goal: Minimize the amount of taxable income and leverage deductions, credits, and exclusions. Strategies:

- - Deferring Income: Shifting income to future years to take advantage of lower tax brackets.
  - Accelerating Deductions: Paying deductible expenses in the current year to reduce taxable income.
  - Tax-Advantaged Accounts: Contributing to 401(k)s, IRAs, HSAs, or other retirement accounts.
  - Tax-Loss Harvesting: Selling underperforming investments to offset capital gains.
  - Credits and Exemptions: Utilizing available credits like the Child Tax Credit, Lifetime Learning Credit, or the Standard Deduction.
  - Income Planning In Retirement: Income shifts to passive sources like Social Security, pensions, retirement account withdrawals (401(k), IRA), annuities, and investment returns. This often involves converting savings into a reliable income stream, which requires careful planning

Estate Tax Planning

Goal: Minimize estate taxes and transfer wealth efficiently to heirs or charitable causes. Strategies:

- - Trusts: Using irrevocable trusts (e.g., GRATs, IDGTs) to reduce taxable estate value.
  - Lifetime Gift Exemption: Maximizing annual and lifetime gift exclusions to reduce estate size.
  - Advanced Directives: Wills and trusts, Financial power of attorney, etc.
  - Charitable Giving: Donating to charities through donor-advised funds or charitable remainder trusts (CRTs).
  - Valuation Discounts: Structuring family-owned businesses to leverage discounts on estate valuation.
  - Family Limited Partnership: is a legal entity often used by affluent families to manage and transfer wealth efficiently while minimizing taxes and preserving control.

Retirement Tax Planning

Goal: Maximize after-tax income during retirement.

Strategies:

- - Roth Conversions: Converting traditional IRAs to Roth IRAs during lower-income years.
  - Roth Conversion Alternative Planning: Suitable for $1million + IRA accounts
  - Withdrawal Sequencing: Planning the order of withdrawals from taxable, tax-deferred, and tax-free accounts.
  - Required Minimum Distributions (RMDs): Timing RMDs to avoid penalties and optimize tax brackets.
  - Tax Efficient Tax Planning: Stay proactive about changes in tax law that could impact retirement savings strategies, such as changes to contribution limits, estate tax exemptions, or Roth conversion rules.

Business Tax Planning

Goal: Reduce tax liabilities for businesses and business owners. Strategies:

- - Entity Selection: Choosing tax-advantaged structures like S-Corps, LLCs, or partnerships.
  - Section 179 Deductions: Accelerating equipment purchases for immediate tax savings.
  - Qualified Business Income (QBI) Deduction: Leveraging the 20% deduction for eligible businesses.
  - Cost Segregation Studies: Accelerating depreciation of commercial real estate.
  - R&D Tax Credits: Taking advantage of credits for innovation-related expenses.
  - Captive Insurance: is an alternative risk management strategy where a company creates its own insurance company to cover risks and liabilities.
  - Cash Balance Plans: Contributions can significantly exceed 401(k) and profit-sharing plan limits, especially for older participants.

Investment Tax Planning

Goal: Optimize after-tax returns on investments.

Strategies:

- Asset Location: Placing tax-inefficient investments in tax-deferred accounts.
- Tax-Free Investments: Investing in municipal bonds or Roth accounts.
- Capital Gains Management: Timing sales to align with lower tax brackets or long-term gains rates.
- Opportunity Zones: Investing in qualified opportunity zones to defer or exclude capital gains.

Charitable Tax Planning

Goal: Reduce taxable income while supporting philanthropic causes.

Strategies:

- Donor-Advised Funds (DAFs): Gaining immediate tax benefits for future charitable donations.
- Qualified Charitable Distributions (QCDs): Donating RMDs directly to charities tax-free.
- Charitable Trusts: Establishing CRTs or CLTs to provide income and tax advantages.
- Charitable Foundation: is an organization established to support charitable activities, such as philanthropy, community development, or specific causes, using donated funds or endowments.

International Tax Planning

Goal: Minimize taxes on cross-border income and investments.

Strategies:

- Foreign Tax Credits: Claiming credits for taxes paid in other jurisdictions.
- Expats and Residency Rules: Optimizing residency status to reduce global taxation.
- Tax Treaties: Leveraging bilateral agreements to avoid double taxation.

Specialized Tax Planning

Goal: Address unique circumstances for individuals or businesses.

Examples:

- - - - Real Estate Tax Planning: Using 1031 exchanges to defer capital gains.
      - Energy Tax Credits: Incentives for renewable energy investments.
      - Litigation Settlements: Structuring settlements to reduce tax impact.

Family Tax Planning, and Family Office Services

Goal: Optimize tax strategies for multigenerational wealth transfers. Strategies:

- - Family Limited Partnerships (FLPs): Transferring assets with valuation discounts.
  - Education Funding: Utilizing Coverdell ESAs or 529 Plans.
  - Generation-Skipping Trusts (GSTs): Reducing taxes on wealth transfers across generations.
  - Asset Protection Planning: involves implementing legal and financial strategies to safeguard an individual’s or a business’s assets from potential risks, such as lawsuits, creditors, or economic downturns.
  - Private Placement Life Insurance (PPLI): Tax-Free Investment Planning for $ 10 million or more in net-worth. Read More on the PPLI tab of this website.