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Tax Shock? You’re Welcome.

Spring has arrived and brought with it the second quarter of 2021, and as usual we’ll be communicating our thoughts this month to those of you who are in our Envestnet portfolios. Look for that soon. If you’re not an Envestnet client and you’d like my take on the state of things right now, click here to let me know and we’ll chat soon. 

Spring also brings that time when our office fields many calls from folks uttering that time-honored phrase: “I can’t believe I have to pay this much in taxes!” My reply? “You’re welcome.”

Not to be snarky, but generally if you’re paying more taxes, it means you earned more money and enjoyed a better lifestyle than you did the year before. As a financial planner, there’s no better compliment than “I’m shocked about my taxes!” Some of the folks saying this may have a new kitchen, or bathroom, or entirely renovated first floor of a historic home. Maybe there’s a new car (or two) in the driveway, or they made lasting memories traveling with family (well, not in 2020…). 

This is certainly not to say, as someone who does work hand-in-hand with your CPA, that we ever want you to pay more than your fair share to Uncle Sam. I get it, trust me. But in today’s world of low rates, there aren’t too many tax write-off ideas that I can get behind. So, the simplest thing is to pay the taxes and move on. 

Some of you might be thinking, “Well, my goal is to defer taxation so I can leave more for my kids, grandkids or charity because I don’t need this money now.” Many of you value your children’s education and you’ve done all you can for them by paying for school and helping launch them on a solid path. They’re now grown up with good careers and perhaps successful spouses. To you I say, that’s amazing! What a great way to leave a legacy. But for you who have retirement accounts you want to pass on, well, those accounts could be ticking tax time bombs that may actually cost your progeny more if you defer than if you pay a little along the way now. 

Like the Easter Bunny, the Tooth Fairy and Santa Claus, the Taxman cometh each year – although more formidably than the former. There’s no escaping him. With this in mind, I do know that the last year has been incredibly difficult for many folks, and I keep all of you in my prayers. Let me know how I can help. 

For those of you who have been economically blessed, not just recently but in the last decade-plus of economic expansion, let’s not miss out on the opportunities you have to plan how you realize your taxes. It’s easy to get caught up in listening to the talking heads on TV and feel like everyone is out to get you for your success, or make you feel guilty and fall into victimhood. But instead, let’s turn that into positive action and talk proactively about how we may be able to help reduce those taxes for future generations. That’s all part of what we do – taxes are a reality, but we can help you enact strategies for tax efficiency that benefits you and yours. 

The reality is that most people don’t want to talk about taxes for 11 months of the year. So right now, set a reminder for yourself for November 1 to call us regarding your taxes, and we’ll put together some strategies for you then to help mitigate your 2021 tax bill. But in the meantime, if you’re shocked about your tax bill for this year …. you’re welcome. 

Article by David Smyth, Senior Partner at Family Financial Partners — a financial services firm in Lexington, Kentucky.

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