Client Tax Savings Examples

Since it is tax time, I figured I would share some tax-related stories from clients. No names or even specifics will be provided. I just wanted to pass along some actionable tax-mitigation items that happened this past year with some of my physician clients. Basically, I am going to share ways we were able to reduce the tips heading to Uncle Sam. Please use these to help avoid some tax stumbles.

• Tax Return Review #1
1. Here I was reviewing a self-prepared tax return for a client who did a couple of Backdoor Roths. I won’t bore you with the details of how to do a Backdoor Roth. The bigger issue was the tax return error related to it.
2. The short version is the client marked their Backdoor Roths improperly on their tax return and ended up paying several thousand dollars of additional tax.
3. Fortunately, it caught my eye, the client and I discussed it, they amended their return and were able to get the money back.

• Tax Return Review #2
1. This was another case of a client self-preparing their taxes. Note, I am totally okay with this approach, but it is important for someone to double-check their work, which is part of what I get paid to do.
2. Specifically, the client forgot to pull in a bunch of data from a taxable account. There were some gains, but more importantly we had done some tax loss harvesting and wanted to get not only credit for the losses to offset those gains but to have a record for carryforward losses.
3. Again, the client had to amend their return and ended up with some money back. The bigger deal was to get the carryforward losses on their return and in the IRS records.

• Asset Location Related to Taxes
1. Asset location is a big deal in my world, especially with my high-income earning physicians.
2. The one example I saw a lot of with new clients over the last year was having the right assets held in the proper types of accounts.
3. Here is the example I always use. If you have an account that will never be taxed again, do you think it makes sense to hold positions in there with the highest potential for growth? Simply – should your Roth hold cash or equities if their growth will never be taxed? In my case, it is usually the latter.

• Taxes Saved by Tax-Managed Investing
1. If you have read my stuff, you know I love Direct Indexing. Again, not going down the rabbit hole of explanation here, but just know using individual positions within taxable accounts for high-income earners is a big value add I provide for my clients.
2. Tax management is a year-round sport and that happened with one of my docs this last year.
3. The short version is proper tax-management in his taxable account added just under 2% to his account’s performance. To put this in a dollar’s perspective, it was in excess of the average Resident’s annual salary.
4. Oh, and the portfolio was cheaper than if he owned a bunch of ETFs and Mutual Funds.

I’m not sharing this to toot my own horn, at least not entirely😉 Instead, it is for a few reminders listed below.

• Tax management is a year-round activity.
• It is not what you make; it’s what you keep.
• We have more control over taxes than we think. And definitely more control over taxes than what the stock market does.
• Over 90% of high-income earners want tax planning from their financial advisors. 90% of financial advisors agree it is important. Sadly, roughly 25% of advisors even ask for their client’s tax returns yearly.
• This is a great way for clients to see the reason they pay me my flat fee.

Final thought – If you do NOT know what your average monthly tax bill was last year to Uncle Sam, you need an advisor who can shed a bit of light on your situation.