October 29, 2018, 1:44 PM

Are you Paying More in Taxes than you Should? Let’s see…

By John J. Ceparano, CPA/PFS, CFP®, M. Tax

The focus here is on planning ahead.  Planning to reduce your tax bite can go far beyond trying to itemize your deductions.  Some of us wait until January or February to begin collecting tax documents that come in the mail, such as 1099’s for your investments, pension or Social Security earnings, or your W-2 if you are still working.  Some of these things you cannot change but others you may have more control of than you know.

Let’s look at different types of income and deductions you may control at different times in your life:

Accumulation Stage - typically when you are still working and paying taxes at the highest rates.

Wages may not change, but the taxable amount could if you contribute to your company’s traditional tax deferred retirement plan or have other pre-tax deductions such as your medical insurance or a Health Savings Account Plan.

It is advisable to have your taxable investment accounts primarily contain tax efficient stock mutual funds or ETF’s, as opposed to bonds or interest bearing investments (like CD’s). The reason is that the interest from bonds and CD’s are taxed at the same tax rate as your earned income (the highest rates) while dividends from domestic stocks and stocks in general will receive the more preferential capital gain rates which could be as low as 0% for long-term capital gains.  There are a number of “tax-efficient” mutual funds that only generate long-term capital gains for this purpose, but be careful because you also have to consider their fees and expenses.

For Business Owners – now that certain itemized deductions have been eliminated, investment advisory fees on taxable accounts are no longer deductible.  Ask your advisor to break-out any of your fees that relate to providing business advice for your planning so you could write it off from your taxable income of the business. 

Consider whether you will receive a benefit by bunching your charitable deductions and paying two years of real estate taxes in one tax year so you could benefit every other year from itemizing.

If you have positive cash flow in your business, consider setting up a 401(k) plan to increase your retirement savings opportunities; however, specific retirement plans are best to meet the unique goals of the owners, age of employees and key personnel the owners are trying to attract or retain.

Decumulation Stage – typically you are in retirement and paying less in taxes because you no longer have wages or income from your business on your tax return.

If you have not started receiving Social Security before age 70 and you are in good health, you should consider waiting until age 70 because each year you wait, you could have an 8% increase in monthly benefits. 

If you wait on receiving Social Security, you could also begin converting IRA’s into Roth IRA’s and potentially pay taxes at a lower rate up until age 70½ (the age you are required to begin taking Required Minimum Distributions). 

This can have a number of current and future tax benefits.  Consider making Roth conversions before you begin taking RMDs at 70 ½ because it could lower your expected tax bracket and therefore reduce the tax burden of your RMD payments in the future. In addition, if you wait until age 70 to begin receiving your Social Security benefits, this may free up your current tax bracket to make Roth conversions without your Social Security being taxed (up to 85%). You can do this until age 70 ½ which is when you are required to begin taking your RMD’s. In addition, the money converted into your Roth accounts will begin earning money “tax-free” much earlier.

A seasoned professional could help you identify opportunities to reduce your taxes now and in the future, but it starts with a look in the mirror.  It is recommended to bring in a wealth management professional to help you keep more of what you make.  No one should pay more in taxes than they should. But you don’t know what you don’t know. A wealth management professional should be up to date on, not only taxes, but other areas of planning to help you coordinate your financial life.  If you are not sure whether your tax and investment planning is coordinated, you can call us for an independent and objective perspective. I look forward to a conversation whenever you are ready.


Modera Wealth Management., LLC is an SEC registered investment adviser.  SEC registration does not imply any level of skill or training.  Modera may only transact business in those states in which it is registered or qualifies for an exemption or exclusion from registration requirements.

For additional information, including our registration status, fees and services and/or a copy of our Form ADV Disclosure Brochure, please contact us or refer to the Investment Adviser Public Disclosure web site (www.adviserinfo.sec.gov).  A full description of the firm’s business operations, fees and service offerings is in our Disclosure Brochure, Part 2A of Form ADV.  Please read the Disclosure Brochure carefully before you invest or send money.

This article contains content that is not suitable for everyone and is limited to the dissemination of general information about Modera’s financial planning and investing services.  Past performance is no guarantee of future results, and there is no guarantee that the views and opinions in this article will come to pass.  Nothing should be interpreted as legal, tax or accounting advice, nor should it be construed as personalized financial planning, tax, or investing advice.  For legal, tax and accounting-related matters, we recommend that you seek the advice of a qualified attorney or accountant.  This article is not a substitute for personalized financial or tax planning from Modera.  The statements and opinions are subject to change without notice based on changes in the law and other conditions.

Share this article