Strategic vs. Tactical Tax Planning

If you search online for “tax planning” advice, you get a lot of information on the tactical management of tax benefits and tax obligations. Hundreds of “Tax Planners” and postings about tax planning pop up like mushrooms in the forest after a rain. The majority of them have one focus: Tactical Tax Planning. Most of them are too simplistic to capture the wide range of issues involved in tax planning matters that demand strategic thinking.

Tactical tax planning focuses on the hear-and-now, and usually deals with annual tax juggling issues. It involves questions like:

• What everyday expenses are deductible?
• Which method should you use to track and deduct car expenses?
• For what did you use the funds taken from your home equity line of credit?
• Do you need to make estimated tax payments?
• For which tax credits do you currently qualify?
• Will your adjusted gross income trigger the Alternative Minimum Tax?

Strategic tax planning, however, takes a longer view of your financial situation, and is not bound by the constraints of annual tax return filing deadlines. As an example, it focuses on how to structure capital assets to maximize the gain on sale by minimizing the capital gains tax due. This sale may not occur for years, but questions must still be answered to maximize tax benefits:

• How can my property portfolio complement each other to minimize my capital gains tax bill when one or more of the properties is sold?
• What is my business worth? Do I have an exit strategy in place when I decide to sell the business and to whom I might sell it?
• How do I plan to pay the taxes due?
• What are the decisions that need to be made in the years before I exit my business that would maximize return and minimize taxes due?
• What is the difference between “loan proceeds” and “sales proceeds,” and why must I understand the difference?
• How do I take advantage of “timing” when accepting the proceeds of an asset sale?

CPAs and the qualified proactive Tax Planner work together as a team to maximize the value of your tax benefits. We divide and conquer the tax code, with each professional applying his particular knowledge base to your financial situation.

Tactical tax planning remains the province of the CPA who principally focuses on compliance with the law. He or she takes what you have already done and filters it through the laws required to come up with an accurate tax return. A CPA is well trained for this work, and this is the core of what the best in accounting can offer you: Every year, your financial activities are properly accounted for, categorized, and filed on time.

Your tax planning advisor complements your CPA when grappling with the more strategic tax planning questions. We specialize in assessing your business activities and asset portfolio to identify missed opportunities and taxes that have been previously paid needlessly. We quantify them, report back what tax law says you are entitled to keep and craft a plan for you to attain them.

We work with clients to plan short-term and for the years ahead, taking advantage of tax law for them to:

• Significantly reduce income taxes
• Pay less in capital gains and other taxes when a business or other asset is sold
• Create greater tax-advantaged income
• Maximize what you get when escrow closes
• Use these new assets for any purpose you think best

We also work backwards, as well as forward. It is not unusual, for example, to find “errors of ignorance” in the past tax returns of new clients when analyzing their returns and financial statements through our Second-Opinion Tax Diagnosis process. We are often able to amend and refile previous returns to capture previously unknown tax benefits for which they qualified.

It is said that many hands make light work. In the case of tax planning and financial management, synergistically melding the expertise of your CPA, tax planning advisor and financial planner make for more profitable work too. We utilize a team-coordinated planning approach with checks and balances in place that protects you from the beginning of the process through to its conclusion.

As your tax planning advisor, we research, identify and facilitate the income and capital gains tax solutions specific to your circumstances; your CPA and other tax authorities validate structure under tax law; your real estate or business brokerage professional guides the sale of the asset; and your financial planner helps guide you in the management of your assets to maximize your returns. The sum of our combined work is always greater than their parts and is focused on maximizing the benefits you receive.