Our Services: Taxes

Tax Planning and Tax Reduction Strategies

When it comes to sound financial planning, taxes and tax law regulation understanding are both vital elements. A critical component of any financial or retirement plan is a comprehensive tax strategy. In a nutshell, the goal of such a strategy is to capitalize on every opportunity the government makes available to you to cut the taxes you will pay on your income, investments, retirement portfolio and estate.

If you think of tax planning in the concept of tools to pay less in taxes, the most important tool is not something obvious like paper, pencil or a calculator. It is knowledge of tax legislation. How well you are able to take advantage of the laws in place each year can determine the size of your tax bill.

For example TIPRA (Tax Increase Prevention & Reconciliation Act) and the Pension Protection Act of 2006:

This important legislation, passed in 2006, follows the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA) and the acceleration of certain provisions by Congress in 2003 provides for things like:

  • The reduced 15% tax rate on eligible dividends and capital gains for taxpayers in the 25% and higher brackets (previously set to expire in 2008) is extended to 2010.
  • In tax years 2008 thru 2010, the rate on eligible dividends and capital gains will be 0% for those in the 10% and 15% tax brackets.
  • After 2010 dividends will be taxed at the taxpayer’s ordinary income tax rate, regardless of whether the dividend is qualified.
  • After 2010 the long-term capital gains rate will be 20% (10% for taxpayers in the 15% tax bracket).
  • After 2010 the qualified five-year 18% capital gains rate (8% for taxpayers in the 15% tax bracket) will be reinstated with limitations.
  • The alternative minimum tax (AMT) income exemption levels were increased in 2006 to $42,500 for single filers and $62,550 for join filers, and the ability to use certain non-refundable personal credits to offset AMT liability was extended through 2006.
  • In 2010 and thereafter, all taxpayers will be allowed to convert traditional IRA balances to Roth IRAs. Once converted to a Roth IRA, assets have the potential to grow tax-free.

The underlying theme behind the PPA is that the Congress has made it easier for people to contribute more money to their retirement plans and keep it there longer with new more flexible and liberal retirement plan provisions. The bill also tightened minimum funding requirements and placed restrictions on employers that fail to comply with minimum funding rules.