Another Tax Season Come and Gone

At Weiss Wealth Strategies, we take great pride in simplifying clients’ financial lives. Some of the ways we do that is through constructing and managing portfolios as tax-efficiently as possible, as well as simplifying the burden of tax season for clients.

A huge “Thank you and job very well done!” goes out to Sonja and Melody as they helped us get through yet another regular tax season.

Some tax season reflections we thought you may find useful as we look forward…

• The importance of using the right managers and strategies within the right account types (taxable vs. tax-advantaged) to create efficiencies and mitigate clients’ tax burdens cannot be understated. The investment platform we use is extremely tax-efficient. Whether utilizing individually managed accounts or structured notes that favor long term capital gains treatment, we strive to minimize ordinary income tax burdens. Paying taxes on income and gains is a “necessary evil” and something that occurs in actively managed portfolios. We often say, “it’s not what you make, it’s what you keep that’s important.” And being intentional and strategic with our allocation decisions across account types helps us help you keep more of what you make.

• Extensions are ok. Though only about 10-15% all Americans file for an extension, the percentage of High-Net-Worth individuals who file for an extension is significantly higher. Simply put, their financial lives and/or investments tend be more complex, which means they require more time to account for all the pieces of the puzzle. A lot of sophisticated investments generate K-1s (as opposed to traditional 1099s) and sometimes those are delayed. We don’t view this as problematic… I have filed extensions for many years, and it has not disrupted my financial life at all.
  We know going in which managers provide K-1s in time for standard filing dates and which managers/strategies are typically delayed. We don’t like surprises (those kind anyway); so we share those details with clients when making investment recommendations. Further, the managers we use within the complex investment space typically provide K-1 estimates in time for standard filing with the final K-1s shared a few months later. The way you use the tax estimates is up to you and your tax advisor. Most investors take one of two approaches:
  Approach 1: Use the taxable income estimates to make estimated tax payments prior to filing their final tax return.
  Approach 2: Use the estimate in place of the actual K-1 and include the estimate in filing their tax return. If the final K-1 received is materially different from the estimate, investors typically either amend the filed return or include the difference in the following year’s tax return.

• Qualified Charitable Distributions (QCDs) are a wonderful tool to reduce taxable income for those above age 73. Those over 73 are required to withdraw a certain amount out of IRAs each year (called Required Minimum Distribution or RMD)… If one chooses to donate to a 501c-3 charity, that donation/distribution from the IRA is considered a required distribution, but it is not reportable as taxable income. One can donate up to a maximum of $105,000 in QCDs in 2024…a terrific way to be philanthropic AND reduce income taxes.

• Utilizing withholding from IRAs at the end of the year is a great strategy to keep your money working harder for you. Some people are accustomed to “paying taxes as you go,” withholding a certain percentage at the time of withdrawal from IRAs. When interest rates on cash balances are high like they are now, that doesn’t make the most financial sense. Why not earn interest on all those potential tax payments and make one lump sum withholding payment in late December? As long as the withholding is paid from IRAs by 12/31, it is not deemed late (there is no penalty). Wouldn’t you rather earn interest on your money during the year than the IRS?

• Let us handle the heavy lifting of tax season. Sonja and Melody are masterful at coordinating all relevant Raymond James tax information. Part of our service is compiling and forwarding ALL of your relevant tax documents relating to your investments here to your tax preparer. Let them do this job and make sure nothing gets missed. With clients’ authorization, we communicate very well with CPAs and tax professionals during tax season and more importantly, throughout the year as we find collaboration allows us to better plan and create efficiencies. Know that all through the year we’re working to simplify your financial lives! And come tax season, there’s no need for clients to do what we can do for you. We’ll keep you in the loop, so you know when it’s done.

We ask you to keep all of this in mind as we move onward from Sonja and Melody’s busiest time of year!

-Gary Weiss, May 2024

Raymond James and its advisors do not offer tax or legal advice. You should discuss any tax or legal matters with the appropriate professional.