Introducing Tax Tactics

Welcome to Tax Tactics, TMN’s new column on technical tax topics and strategies! Tax Tactics will join The Briefs and the The Networker (soon-to-be-renamed Tax Beat) with a new production schedule: Briefs on Tuesday, Tax Beat on Wednesday, and Tax Tactics every other Thursday (at least, until I can get up to speed with a third weekly column). I’ll be spending a lot of time on my laptop – good thing I love to write!

I have two primary goals here. First, I want to give you a solid grounding in the foundational tax strategies you’ll use as a planner to save your clients’ money and impress them with your value. These include S corporations, MERPs, charitable strategies, and similar topics. Much of these discussions will lead into more detailed material in the Technical Training Center. The point isn’t just to give you the facts – I want to focus on the tactics involved in using those strategies with real-world clients.

Second, I want to bring news and analysis of tax developments that increase or restrict those opportunities. Again, this needs to be more than just “here’s what Congress passed,” or “here’s what the Tax Court decided.” We’ll focus on how you can use the news to find new savings. These discussions should be especially important in 2021, as the new administration works to deliver on Joe Biden’s promise to raise taxes on corporations and individuals earning over $400,000.

I also have two secondary goals. First, I want to make sure I frame anything I discuss in the context of a client’s long-term tax and financial plan. This will probably surprise you. But my goal, when I work with clients, isn’t to minimize their tax bill. That’s because taxes are just one piece of a client’s overall financial picture (albeit in many cases the most important piece, or the problem that needs fixing the most). My goal is to help the client accomplish their unique and individual financial goals with a minimum of interference from unnecessary taxes. And sometimes, saving right now actually interferes with that long-term goal. (This is especially true with retirement plan strategies.)

Finally, I want to highlight some of the ethical dilemmas we face as planners. This is closely related to the previous point. It’s easy to sit down with, say, a successful physician netting $1,000,000/year and show her how a defined benefit plan can lop $200,000 off her taxable income with a cash balance plan. And that might be the best choice, and lower her tax by $74,000 that year. But you can’t ethically say you just saved her $74,000. That’s because the plan doesn’t eliminate tax on that income – it merely defers it.

Now, we can hope the client is in a lower bracket when they pull that money out. And if that’s true, you’ll have saved your client something – but you can’t guarantee it, and you probably can’t even quantify it right now. Worse, you can push income into a higher-tax year and wind up costing them more tax down the road. That’s not a success for your client, and it discredits the whole tax-planning process.

As always, I welcome your questions, comments, suggestions, and criticism. Let me know what you want me to write about, or if I can do a better job focusing somewhere else. We’re all here for the same reason, and I want Tax Tactics to deliver as much value as the rest of the Tax Master Network resources!