Tradewinds Tax Planning

Finance & Wealth Management | Tradewinds Tax Planning MA We are Tradewinds Tax Planning, providing comprehensive financial planning and advisory services near your location in MA. Visit to learn more.

Are Taxes Fair?
The answer to that might surprise you. Because, for the most part, the answer is yes. However, sometimes they are only fair if you know how to “play the game”. Most people think only the wealthy can avoid paying income tax because they know how to play the game. Well, at a much lower level, everybody knows some of the tricks to “playing the game”. For instance, you might contribute to your 401(k) at work. Well, you’re playing the game. However, you might not know that even though you’re contributing everything you can to your 401(k) at work, you’re still allowed to open an additional private IRA and take another several thousand dollars off of your taxable income. That trick is “knowing the rest of the rules to play the whole game”.

Or, you might know that you can deduct a home office for your small business. Many people use the simplified method and take the IRS’s flat rate per square foot. That’s playing the game. But what you may not know is you don’t have to use the simplified method. You can do a long-form 8829 Home Office Deduction, and take a prorated portion of your mortgage bill, property taxes, utilities, cell phone, internet, the kid who mows your lawn, the guy who plows your driveway, and so on, and get a much larger deduction. Why doesn’t everyone do that? Because it takes the tax preparer an extra 10 minutes, and their attitude, for the most part, is next, next, next, let’s get it done fast so I can get paid by the client. This information is made available to every tax preparation firm by the IRS, by software manufacturers, and by outside education third parties like the AICPA. They just have to take the time to want to be great at their work, instead of just okay.

Are taxes fair? Yes, if you learn to play the game the right way, there are plenty of tax reduction opportunities and a fair tax result can be had. But, if you only play half the game, you only get half the fairness. How do you learn to play the whole game without becoming a tax nerd and spending 40 hours in classes? Quite frankly, the IRS does not hide the special rules to play the game. This is all public information. The problem is that the average person doesn’t have the time or interest to learn all the rules. So, what do you do? Well, you don’t go to a tax preparer, you go to a tax planner. Tax planners, often financial advisors, CPAs with certain designations, and even attorneys, have taken the time to learn how to play the whole game on behalf of their clients. Check out our website and see what we are all about. We play the whole game with our clients and help them achieve a better-than-fair tax outcome.
www.tradewindstaxplanning.com

Finance & Wealth Management | Tradewinds Tax Planning MA We are Tradewinds Tax Planning, providing comprehensive financial planning and advisory services near your location in MA. Visit to learn more.

Filing An Extension Can Relieve Anxiety

With tax season in full swing and documents from brokers/dealers and other investment companies coming out later and later, you can definitely smell the tax “angst” in the air. The amount of pressure that tax offices and their clients seem to be under is palpable.

Why is this all happening and what about this is important to you?

It’s happening because, over the years, although the IRS has stood firm at mid-January to April 15th as the filing season for 1040 filers, on the other side of the equation are the vendors themselves that have to send documents to the IRS: The banks, the mortgage companies, the investment companies, etc. The companies have managed to lobby and get extensions of time to send their tax documents because their reporting is affected by other companies’ deadlines or complexities that are, as they argue, “beyond their control.”

When the IRS originally said January to April 15th, the majority of documents were in the mail to us, the “little people,” by February 15th, which gave us about eight weeks to receive those documents, get them to a preparer, and get the job done. However, it’s not uncommon now to see brokers coming out with their statements in late February, even early March, and limited partnerships and many other investments that issue K-1s maybe even later than that. Some clients that we see have received a letter saying their tax documents won’t be issued until April 1st. For those folks, it’s almost for certain that they’ll have to go on extension, whether they like it or not.

So what do we do about it?

Well, there’s not much you can do about it except understand that this is the gathering and presenting of paperwork to the IRS, and it has very little to do with paying the tax or the money side of the equation in general. What am I talking about? Well, the IRS has already withheld money from paychecks, pensions, IRA rollovers etc. They have your taxes, for the most part, already prepared; they’re just waiting for the paperwork that matches from you.

Why don’t they just file our taxes for us then?

Because people can do things that alter the amounts that the IRS has on file. For instance, at work, you might have had a certain amount of money withheld from the W-2 that is pretty much a full amount of the tax liability, but then during the year you opened an IRA for yourself and your spouse, which will reduce your tax liability, forcing the IRS to return some of that withholding. Whereas if you hadn’t opened private IRAs, they’d be keeping it all. The IRS already has the money, and they already have an expectation of the tax liability, they’re just waiting for you to turn in the final paperwork to let them know where things really stand. The filing of that paperwork from you can be extended beyond April 15th!

If you have angst about not getting tax documents in time, you can take the panic road, or you can take a more relaxed approach. Step back and look at what’s really happening and maybe consider taking an alternate view.

Say to yourself:

I’ve already paid the majority of my tax.
I can send a check right now for any amount I want so that there will be no penalties and no interest whenever I do file.
The IRS allows me to file an extension for my corporation or my personal return, giving me six more months to file my actual return.
Again, as long as I paid my tax liability in advance there’s no penalty for turning in the paperwork later.
Why are we all in this mad rush to get the paperwork in on the first deadline? Quite honestly, we don’t know! They made it difficult to get the paperwork in on time, again because of the allowance of companies to send the documents that we need out later and later.

Just go sit down with a preparer and guesstimate how much you’ll owe in tax, send in that amount and send in an extension form, then don’t worry about when the documents come, don’t worry about the mad rush of the tax filing. The April filing deadline will come and go with no consequence. You can file your taxes in May or June, or even later. As long as you paid your tax liability in advance, they don’t care when they get the paperwork.

Tax Planning Often Has Bonus Benefits

Have you worked toward losing weight in the past because you want to look more attractive, or fit into an expensive wardrobe you already own? When you lose weight you often also lower your blood pressure and/or cholesterol as a bonus. It might not be the primary motivation, but the extra benefit is of course welcome!

If you are a business owner, then we pose this question. Some time ago you had an idea. Over the years you turned that idea into a successful and profitable business. Have you properly protected what you worked so hard to build? An unexpected turn of events could put your biggest asset at risk.

Did you know that moving business earnings into a qualified plan could protect your assets as well as provide a current tax deduction? Money in a qualified plan is generally protected from creditors, or at least better than other ways you can store capital. That means no one can take away what you have earned. You re-positioned the money to save on taxes but ended up also protecting things much better from a legal perspective.

There are many examples like this where proper tax planning can also provide other benefits to you if keeping more of your own hard-earned money isn’t enough of a reason! The side benefits of tax planning are like the icing on the cake. So stop putting it off. Go see a tax planner today!

Why Didn’t My Tax Preparer Tell Me That?

When you start tax planning with a new client, the first thing people often ask is why the accountant or CPA they are using doesn’t think or act the way you do in discussing the hunt for possible tax savings. After all, the current CPA is smart, trustworthy, running a successful accounting business and well respected in the community. So, why are you telling them all these wonderful new tax savings ideas that their CPA has never mentioned? There are many explanations, but the simplest is how the accountants themselves view the job that they do.

Often, accountants think that the profession of accounting in its simplest form is the job of telling the story of money that has already come in or gone out, and they are reporting “history”, which is very different than telling a story that will “change history.”

What? Can accountants “change history”? No, they cannot. But, the history of money in and out doesn’t end when the event itself happens. It ends the day the accounting is sent to a taxing authority. And, even after it is sent, it can still be changed again!

For instance, a business owner buys a $50,000 delivery truck for 100% business use, and the accountant puts the truck in a standard depreciation schedule of 5 years. Basically reducing approximately $10,000 per year of the company’s taxable income for the next 5 years. The company then has a great year and after the owner’s personal taxes are completed he ends up with the highest tax bill he has ever been faced with. The CPA recommends putting money (that the owner would rather keep in order to expand the business) into an IRA to lower the owner’s tax bill. He is told, “That`s all you can do at this point.” However, that is actually not all that can be done, since the IRS allows accelerated deprecation, which means the owner could amend the Corporate 1120S and elect to take the entire $50,000 as depreciation for the delivery truck, all in the current year. So, rather than having to fund the IRA, he can now use that cash flow to expand the business as desired.

Many CPAs are almost robotic when it comes to simple tax planning. Often, they decide FOR the business owners what’s best for them, instead of explaining more and working in tandem with them.

Accountants often see the job of accounting in a very narrow view, and looking around for additional tax savings, or even more so, changing business practices in order to lower the future tax bill is “not the job they are hired to do.” However, we think this is a very important part of any good plan. That’s why our firm states proudly that we are proactive tax planners!

What’s the catch? Why wouldn’t everyone use tax planners then?

Mainly because tax planning comes at a terrible cost that most people just do not feel they can afford…TIME!

Time answering questions, gathering documents and discussing and learning enough about the recommended changes to achieve tax savings. Time learning something new. The cost is time and everyone is already so busy!

Our question to you is what is your time worth? If we had a 30 minute meeting to review your last two years’ tax returns, then a follow up meeting with one hour of sharing plans on how to pay less tax, and then up to two and a half more hours over a few weeks or months educating your current accountant and setting up new processes, and all you saved was $4,000, would it be worth it? Well, that’s $1,000 dollars per hour for your time! What if you are a business owner? The time is often the same and the savings can be $40,000 or more. Would that time be worth $10,000 per hour?

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Yes, You Can Change Your Tax Outcomes After December 31st!

At this time of year many people who were getting a refund have already filed their tax return. It leaves the remaining majority of folks who, despite having withholdings, are still going to owe additional tax. We talk a great deal about tax planning and changing behaviors to achieve better outcomes in the future, but many are faced right now with a tax bill for last year.

So, what can be done? Anything? The answer is YES! It’s actually simple and easy for most folks to substantially reduce the tax liability they are facing by opening a prior year IRA! It is one of the very few ways the IRS allows you to retroactively affect your taxes. What if you don’t have the cash for an IRA? You can turn assets you already own into a prior year IRA with some simple paperwork, with nothing needing to be bought or sold.

Let’s give you an example: Kevin and Cathy are facing a $3,900 tax bill even after having $12,000 withheld from their W-2s. They have a daughter in college, so there is no cash in the bank to put in an IRA, or to pay the $3,900 tax bill. They do, however, have a brokerage account with E*TRADE with a few stocks they have purchased over the years. They can simply do an online IRA application (make sure it’s an application for the previous year, not the current year). When they have account numbers, they can then transfer “in kind” any of the stocks from the regular brokerage account to the IRA without selling them. In a sense, they are taking them from the left pants pocket and putting them in the right pants pocket. The outcome…ta-da, a $13,000 IRA deduction, and they still own the same stocks!

One thing to consider is that they have now locked up that stock until age 59.5. Another consideration is that stocks are subject to a capital gains tax, which is lower than ordinary income. Suitability of IRAs vs non-qualified stocks is not the point of this post. Anybody making any decisions about finance should seek professional advice, which IS the point.

If your tax preparer just says ,”It’s bad news” and doesn’t offer at least some solutions, then you should go to a tax planner and work through your options. But just because there is no cash in your checkbook, it doesn’t mean you should think that nothing can be done.

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They Zig, We Zag

People who are worried about the 10 year rule, requiring beneficiaries of inherited IRAs to withdraw the entire balance within 10 years, can double that time with a CRT beneficiary in front of inheritors. What if you really have a big IRA and the 10 year rule just isn’t enough of a stretch to help your beneficiary stay out of the top tax bracket? Or any other reason you care about reducing the negative tax impact from the 10-year rule?

You could use other remaining tax rules to your benefit by setting up a charitable trust. A charitable trust allows the retirement assets to continue growing tax-deferred, even once the assets are distributed from the retirement account into the CRT. Tax is paid only when the trust distributes income to the beneficiary (often a child or other non-charitable beneficiary).

Essentially, the charitable trust creates the ability to regain the benefits of a stretch IRA. The charity is involved at the passing of the initial, non-charitable beneficiary, but it can also occur at the end of a term, for example 20 years from the account owner’s passing. Whether it is at the end of a beneficiary’s life, or a term, the charity receives the balance of the trust assets at that time. The only requirement is that the trust is designed to leave 10 percent of the initial contribution to charity.

The IRS zigs and the planners zag, and we all march on with one common truth. People who meet with tax planners are the winners and people who do not often lose out. Plan your tax outcomes!

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Simple or Complex, Tax Planning is Important!

Sometimes “Tax Planning” can be easy: “Open an IRA and it reduces your taxable income.” Other times it can be quite complex: “Cost segregation” on a building means hiring an engineering firm and having a structure broken down into its many components on paper, with each value separately listed; the frame, wiring, heating systems, etc., and taking write-offs, generally much faster than simply taking a standard approach. These are both ways to lower federal or state taxes.

For the people who have made large amounts of money or have larger estates, the year to year tax bill is not as much of a concern as the “Death Tax Bill.” Planning for them can be simple or complex as well, but the tax they are trying to avoid is the largest tax they will ever face and could collectively be more than all the annual federal taxes they ever paid during their entire lifetime (although technically, it will be their heirs who actually pay it, as they are deceased).

One such planning trick these people often use is to arrange legal ownership of their companies or assets so that it’s broken up into parts, then they can claim to the IRS that the parts have much less value then the whole, and gift those parts away while still living to trusts, children and other heirs.

Those steps look like this:

1.Take almost any kind of investment – a private company you own, a piece of real estate, a stock portfolio – and put it in an LLC or another legal entity.

2. Divide the LLC into pieces and spread it among your heirs, or trusts created on their behalf.

3. Claim that the combined value of the pieces is less than the value of the whole, because no one entity controls the entire investment. Some advisers insist that their client’s stake is worth 30% to 40% less than it would otherwise be, with bigger discounts for smaller stakes lacking voting power over the LLC.

4. Later – perhaps after you die – your family can get together and sell the entire asset on the open market and profit from its real, non-discounted value.

This works even for an LLC containing publicly traded shares that, if they hadn’t been locked up in the LLC, could easily have been sold off for their full value. Tax planning means different things to different people, with the goal of avoiding different kinds of taxes in different situations. But there is one constant, one thing across the board that’s true for everyone. If you haven’t hired a tax planner or a financial planner that is tax savvy, then you won’t know what’s possible and you might pay more than the folks who have engaged a planner. Give us a call today!

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The Only Constant is Change (especially with taxation)

We talk a lot about people not doing tax planning and not spending more time creating the tax outcomes they want. We urge people to understand that it’s within their own control and that tax outcomes can be legally and ethically manipulated. We go on and on about the benefits. BUT…we understand why it’s so rarely done!

It is because almost nothing in people’s lives has more constant change than taxes, and keeping up with all the changes can be an overwhelming challenge. What if every four years your banking rules changed, “Oh I’m sorry John, we no longer pay you interest, now you pay us interest to keep money here.” Or “Now you have to send in your mortgage payment daily, not monthly.”?

We all have complex and often busy lives, so when the IRS changes at least a few of the rules every year (or sometimes even more frequently) it’s easy to understand why people seem to give up and just justify inaction with, “It’s over my head” and “They’re going to get what they want from me one way or the other” type statements.

The problem is magnified because people don’t always visualize what the costs are to not paying more attention. If people have an adjustable rate mortgage then every time they get the statement they look to see what the increases or decreases are, plus the mortgage companies must by law do calculations for you and say “The interest rate change means you will pay $18,400.01 more over the life of this loan” and seeing such statements makes people react. The IRS doesn’t have such requirements so people have become disconnected. What if at work your paycheck stub said, “By not maxing out your 401(k) contribution, you will pay an additional $1,453.88 in taxes, and over the next 21 years that represents $31,890.00 retirement dollars you won’t have?”

People need to understand that not overpaying taxes is another potential form of retirement savings. It matters, and if they can’t understand the rules they can simply hire a tax planner that does. This isn’t a game. It’s the life you get and the retirement you get, and actions matter as well as INACTION!! Find a tax planner (us!) or get educated yourself; or get taken advantage of.

Tax Season Is Here Again! Choose Apples or Oranges.

There are many ways a tax return can be done that are all OK with the IRS, but only one of those ways nets the largest refund! People need to understand this across America, and we talk about tax planning constantly. We blog, tweet, post, email and on and on, yet we as an industry are not even getting 10% of the public to take on tax planning! The clients who do are often thrilled at the outcomes, and yet it’s just hard to get people to want to spend half the time that they spend planning their vacations on planning their own tax outcomes, even though larger refunds would pay for those vacations!


Tax planning offices often don’t look like a franchise such as H&R Block or Liberty Tax. Those “tax stores” often spend a great deal of time and effort on locations of convenience, fast or same day service and focus on people expecting refunds. They do all types of tax returns, as far as we know, but the focus of their services is obvious.

Planning offices, on the other hand, take a few days to do returns, have CPAs and EAs doing the work and have a second set of eyes review the process. They often do not loan tax clients the IRS refund for a fee. In fact, they are most often working with taxpayers who are not necessarily getting a refund. Complex returns for business owners, landlords and corporations can’t be done in one “walk in the door and walk out with a return” process. Even though they take more time, they also are often less expensive than an “instant service in a high traffic area” model.

If you want a same day return, fast service and are willing to take a short term loan to get some of your refund right away, then just look for a foam finger, green face paint or the other “mall header” based systems, as they are all around you! However, if you want CPAs or EAs doing your work, and then to have the work double checked by a second qualified set of eyes, and you want it cheaper than most national walk in services for a more complex type return, look off the beaten path for the tax preparation and planning services. Wait a few days or even a couple weeks for the work, but reap the benefits!!

Lower Your Tax Bill More by Using a Qualified Charitable Distribution

This is the time of year when people often start taking personal inventory of how fortunate they are and start considering charitable contributions as a way to “give back” a little. For some, it’s an automatic budget item in their day to day lives, but for others it’s a new activity.

For many years the IRS has helped people give by allowing charitable contributions to be deducted on schedule A when they file their taxes. The tax deduction value of those gifts changed with the Trump tax code simplification, as many people no longer need to file a Schedule A due to the higher standard deduction.

Many people are still ingrained in their old charitable giving habits and aren’t aware that they can, and often should, do it differently to maximize their tax benefit. Not everyone can do a Qualified Charitable Distribution (QCD) from their pre-tax retirement accounts, but for those who are old enough that they have to take Required Minimum Distributions (RMDs) from those accounts, doing a QCD is a more direct and beneficial way to accomplish tax reduction. Unlike a charitable deduction, which provides no tax benefit if there is no Schedule A filed, a QCD directly lowers your Adjusted Gross Income (AGI) as well as satisfying up to $100,000 of this year’s RMD, whether a Schedule A is filed or not.

Give us a call today if you think you could benefit from this special provision in the tax code.

Fix the Underpayment Tax Penalty You’re Headed For with A Simple Halloween Trick

In a few months the U. S. will begin filing tax returns again, and at tax firms all over the country people will be making the “E-Trade” Shocked Baby Face (remember him?) when they see they are being charged penalties and interest for under paying their taxes due. Even if they made a 941 payment in the last quarter to cover ALL the tax due for the year, they can still find themselves fined by Uncle Sam as a penalty for not paying equally over the four quarters of the year. A last quarter over-payment simply means they underpaid for three quarters and overpaid for one quarter, and no, it’s not “good enough” for the IRS.

People also argue that their income fluctuates or simply is not calculated because of a business structure, like a landlord who collected rent, but it’s not profit in March if he puts on a new roof in November. The reply of course is, “well it’s the rule” and you should all have a CPA level of understanding and know what to do, as the rules are available to read. Not helpful.

Here`s a fix for some folks that we have learned, not from the IRS, but from financial educator Ed Slott. Ed, in a Retirement Advisor article, says to use an IRA Required Minimum Distribution (RMD) withdrawal that includes withholding. Many seniors wait until towards the end of the year to take the money they are required to take from retirement accounts. They might be taking more and doing Roth conversions, or deciding to have it go to a charity instead of to themselves, which has its own tax benefits, but they haven’t yet signed the withdrawal forms. Ed says that if from that RMD you have all the taxes withheld that you need to cover all taxes due for the year, the IRS rules treat that withholding as paid equally throughout the year! Great trick!

It’s a treat to not pay the penalties, so go see a tax planner and bring last year’s return with you. Let them review the return to see if you paid underpayment penalties, in case you’re not sure but suspect you did, and then calculate the RMD. Have the withholding from the RMD be large enough to pay all the missed quarterly payments, and avoid the penalties. Happy Halloween in advance!

“Fall” Into Tax Savings for Next Year!

With fall in the air, it’s time to start thinking about things that need to be done to prepare for winter. The garden harvests are rolling in, fresh vegetables are everywhere and it’s really, really great. Time to fill up your oil tanks before the price change, and at least know where those snow tires are in the back of the garage. It’s also time for tax planning.

There are so many things in the tax code that have time limitations. It’s really time to check in with yourself if you want to actually participate in your bill with the IRS. Taxes can be very much within people’s control, even though they don’t feel that way. If you’re still out on extension, heads up — you have less than a week, so it’s time to finish whatever you have been putting off, and get that stuff into a tax office.

Some people might say “Well, I have until October 17th this year.” Remember, October 17th is the final filing day, so you should attempt to e-file no later than October 14th, in case there are problems. And that means you probably should have your stuff at your CPA done and reviewed by the 8th. You’re out of time!

Also, if you’re planning on funding any business related retirement accounts — SEPs, Keogh Plans, anything other than an IRA — this year, those documents have to be in place very, very soon. You don’t have until April 15th to do anything other than fund personal IRAs. If you’ve been thinking about setting up an account for your business that you can fund with much more than an IRA contribution, the paperwork has to be done and in soon, and the funding often has to happen before the end of the year!

Lastly, there is the overall common sense that if you do a pro-forma return for this year, based on nine months’ income, you can now start to look at just how much tax you may owe by the end of the year, with time to make adjustments. Like start shopping for equipment for your business that you can fully deduct, or other proactive business purchases. The problem is if you don’t know you need to make the adjustments, then how are you going to make them with confidence and with time to think about what you’re about to do?

Bottom line. If you’re on extension, get that 2021 return filed ASAP, then visit with your tax planner to work on optimizing your 2022 tax outcomes.