Tax Planning is a Year Round Endeavor

US Wealth Napolitano |

By: John P. Napolitano, CFP®, CPA, PFS, MST, RLP®

Part of the financial planning process is tax planning.  A solid tax plan considers all forms of taxation, with steps taken to help reduce, mitigate, defer and otherwise not pay any more than you are legally required to.

Too many families let taxes drive their plan and avoid making certain financial decisions simply due to the tax consequences. Taxes are certainly a factor to consider, but may not be the most significant issue. When looking at this year’s information, develop an eye towards how you may make your income or deductions more tax appealing for your next return.  For many taxpayers, by the time you file your 2016 returns, 2017 is at least 25% over.  And that means that the time to plan your 2016 tax strategy is now.

You can reduce your taxable income by looking into ways to defer, or eliminate income from your return.  Common deferral techniques include stuffing as much as you can afford into retirement plans, Roth IRAs or 401Ks.  Another popular tool is with the use of annuities. Deferred annuities allow your gains to avoid taxation while you earn and pay taxes on those earnings when you eventually withdraw the money. Deferrals are a double edged sword, it can cut both ways because of future unknowns. For example, what will your income tax rate be when you do eventually withdraw the funds from a tax deferred account?  Of course, the answer depends on both your personal situation and whatever new legislation that congress cooks up.

For the time being at least, long term capital gains still enjoy favorable tax treatment. In general, looking to generate as much income as possible as long term capital gains is more tax efficient than ordinary income under the current tax structure. With capital gains tax rates historically low, this may be a good time to create gains. Many investors refuse to sell positions due to the tax consequences of selling.  While I understand the importance of deferral, the potential benefits of a lower tax rate and diversification are equally important.

On the deduction side, the best planning frequently involves timing.  It is too late for most to make any payments now that affect last year’s tax returns.  The exception for some may be contributions to IRAs and other retirement plans for the self-employed.

The best way to start a tax plan is to look at your prior year’s return and create a column for what you expect on the current tax year.  With the guidance of a tax savvy financial advisor or CPA, you should gain clarity on what it will take to improve your tax position for next year’s return. Of course, some rules may change, but that is the benefit of working with a qualified professional.  Refining your forecast based on changing circumstances, yours or the IRS’s, are critical to a meaningful tax plan.


John P. Napolitano CFP®, CPA is CEO of U. S. Wealth Management in Braintree, MA.  Visit JohnPNapolitano on LinkedIn or The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. John Napolitano is a registered principal with and securities offered through LPL Financial, Member FINRA/SIPC. Investment advice offered through US Financial Advisors, a Registered Investment Advisor. US Financial Advisors and US Wealth Management are separate entities from LPL Financial. He can be reached at 781-849-9200.  This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax advisor.