Tax Time is the Right Time for Americans to Plan for Their Future

 In News, Taxes


Edward P. Schmitzer, CPA/PFS, CFP®
River Capital Advisors, L.C.

Tax Time is the Right Time for Americans to Plan for Their Future
Edward P. Schmitzer CPA/PFS, CFP® advises that financial planning is a year-round activity

• Eight in ten affluent Americans use the information on their tax return to guide financial plan
• By nearly a nine-to-one ratio, affluent Americans say working with individuals, such as CPA financial planners, would make them more likely to reach their financial goals
• Summary of financial planning opportunities in the wake of tax reform

Jacksonville, Florida, May, 21, 2018 – The stress of the 2017 tax-year filing deadline has passed and, though many Americans may be eager to put away their financial records, now is the perfect time to plan for the future. Instead of filing and forgetting it, Americans should use the information in their tax return to work with a CPA financial planner to develop a plan that will put them on the path to reach their financial goals.

According to a survey of 507 affluent Americans (either $250,000 in investable assets or more than $200,000 household income) conducted online by The Harris Poll for the American Institute of CPAs (AICPA) before the new tax law passed, nearly 8 out of 10 respondents (78 percent) said they are likely to use the information on their tax return to guide their financial plan.

This underscores the bridge between taxes and financial planning. A tax return can double as a roadmap to a more prosperous financial future. In it, Americans can find details of their cash flows, important investment information, insights to retirement and estate planning and identify overlooked strategies to help them achieve their financial goals. With the significant changes brought about by the Tax Cuts and Jobs Act now in effect for the 2018 tax-year, Americans should revisit their financial plan with their CPA while all their documents are readily available.

“Whether you’re an early bird or a procrastinator, tax time is an excellent time to assess your personal financial situation and plan for the year ahead and beyond,” said Edward P. Schmitzer, CPA/PFS, CFP® with River Capital Advisors, L.C. . “Generally, my experience has been that people spend more time planning for their vacation than they do for their financial future. When you gather your tax documents, you have most of your important financial records in one place and it’s a great time to prepare for your future planning.”

Ed Schmitzer is the President and Founder of River Capital Advisors, L.C., a fee-only, independent, investment advisory and financial planning firm that has openly embraced being a financial fiduciary for over 20 years. Ed as well as the rest of the team at River Capital Advisors, L.C. are members of The National Association of Personal Financial Advisors (NAPFA), an organization consisting of highly trained financial advisors who are committed to working in the best interest of those they serve. Ed is also a tax partner in the Jacksonville CPA firm of Smoak, Davis & Nixon, LLP, a medium sized CPA firm that provides a wide range of financial services to individuals and business owners.

The survey found nearly a quarter of affluent adults (23 percent) received a notice from the IRS that they have overpaid taxes in the past 10 years and were owed a refund. In addition, 14 percent underpaid and owed the IRS money. Over or under withholding payroll tax can be a strategic move. But winding up with a big tax bill or a large refund can also indicate that adjustments are in order. And with updated withholding tables from the new tax law in effect, now is a perfect time to do this.

“You could be leaving money on the table by not taking advantage of certain tax planning strategies,” Schmitzer added. “For example, we do not see people making the proper use of Health Savings Accounts. If the family is healthy and does proper planning, the dollars contributed to a Health Savings account should be invested to compound and grow, providing dollars that will be needed at retirement to fund health care costs.”

The survey also found that affluent adults appreciate the value of a financial planner with substantial tax expertise. By nearly a nine-to-one ratio, affluent Americans (53 percent) say working with individuals, such as CPA financial planners, would make them more likely to reach their financial goals (versus 6 percent less likely). Financial planning is not just for the wealthy. Every American can benefit from knowing where their money is going and taking advantage of opportunities to incorporate planning strategies available to them in the tax law.

With tax-filing season having just concluded, here are a few financial planning opportunities CPA financial planners suggest Americans review to see if they make sense for them:

1. Make your 2018 contributions as early as possible: Taxpayers should make their contributions to tax-advantaged accounts, such as IRAs, 529s, health savings accounts and workplace retirement plans, as early in the year as possible. By making these contributions earlier rather than later, taxpayers will benefit from additional tax-free compounding growth, which can be substantial over time. Time is an asset for financial growth and taxpayers should take advantage of it by making their contributions to any tax advantaged accounts as early in the year as possible.

2. 529 College Savings Plan for education expenses: For families with kids going to private elementary or high school, take advantage of the new 529 provision that allows you to pay $10,000 per year, per child, from a 529. If your state gives you a deduction for amounts contributed (check with your state’s plan to find out any limits on each year’s deduction), even if you don’t have a 529 established, it could make sense to deposit up to that deductible limit in the account first before paying education expenses, which can lower your state income taxes. Your CPA can help you work out the logistics.

3. Participate in employer 401(k): If your company has a matching program and you’re not participating in it, then you’re missing out on an opportunity to reduce your tax burden while you save for retirement. As you review your W-2, you’ll be able to tell how much you contributed in the prior year. Make sure you’re contributing enough to get the full company match, otherwise you’re essentially turning down a “free” 100 percent return on your contribution. For the 2018 tax-year, the contribution limit for employees who participate in 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan is $18,500.

4. Review employee benefits: Tax time can be a good opportunity to review your employee benefits and determine if any changes need to be made during the next open enrollment period. Lots of companies are offering ways to save their employees money such as health savings accounts or pre-tax commuter benefits. Ask your Human Resources department for a benefits manual if you haven’t received one already.

5. Review investments: An annual investment review is always recommended to ensure that your goals and life circumstances have not changed, which will have an impact on your asset allocation. Moreover, you should determine if you need to re-balance your investments to maintain your desired level of risk. Also, consider if potentially switching to more tax efficient investments makes sense for your financial goals. A CPA financial planner can help you determine the most appropriate strategy for your unique situation.

6. Consider bunching medical expenses into 2018: If you have been putting off a procedure or visiting a medical specialist, now may be the best time to schedule that appointment. Under the new law, the 7.5 percent of income medical deduction threshold will be in place only for the 2017 and 2018 tax years. After that, the threshold reverts back to 10 percent of income. For what is and isn’t deductible, visit the IRS website.

Survey Methodology
This survey was conducted online by The Harris Poll for AICPA within the United States from September 26 to October 10, 2017, among 507 affluent U.S. adults aged 18+, who either have $250,000 in investable assets or more than $200,000 house hold income. Results are weighted to bring them into line with their actual proportions in the population.

About River Capital Advisors, L.C.
For over twenty years, River Capital Advisors (“RCA”) has been helping clients protect, preserve and grow their investments to help them achieve their financial goals. RCA does not sell any financial products, does not charge any commissions and its sole source of compensation is from its clients. Being affiliated with the Jacksonville CPA firm of Smoak, Davis & Nixon LLP (“SDN”), makes RCA the exception and not the norm in the financial services industry. RCA and SDN have CPAs and CFP® practitioners on staff to help clients in all aspects of their financial life. Please contact us for a no cost review of your current portfolio, for a sample financial plan, or to discuss the tax and accounting services you may need from SDN.

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