Tax Advice: Real Life Tax Planning We do for Clients

Do you do taxes?

This may be the first or second most question we get asked.

While we don’t help clients prepare and file taxes, we integrate tax advice and planning into every investment and income decision we make. Let me give you some examples of what tax planning actually means for Alpha clients:

Scheduling charitable giving for optimal tax savings

Ryan and Linda are high earners about to make the jump to retirement after a long military and civilian career. They give a good bit to charity each year, so one of our strategies is to make a lump sum contribution (for multiple years of donations) to a Donor Advised Fund in their last working year. Why?

1. They get all of the charitable deduction in a high income year, maximizing their tax savings

2. In their first few years of retirement they already have charitable money budgeted and set aside, reducing cash flow constraints during the transition.

‘Scheduling’ to us means looking at their last few years of giving and ballparking an annual amount. Then we try to gauge the timeline - will this be for just a few years? Or for a long time? Will this be enough of a deposit to get us to 70.5 when we can give straight out of IRAs? All of these questions we help answer with clients.

Reducing tax bills while reducing stock concentration

Ken was a very successful salesman for a publicly traded company before retiring. Part of his compensation was in company stock grants. Due to Ken’s and the company’s success these grants were very valuable and became a considerable part of Ken’s net worth.

We monitored the situation closely and during a dip in the stock we were able to sell out of one of the previous grants at a tax loss. This accomplishes a couple big things for us: 

1. it gave them a tax loss, reducing their tax burden for the year, and

2. (probably more important) gave them the funds to pay off their mortgage! This was a big goal for them and getting funds out without a big tax bill allowed them to do this.

A back-door Roth IRA accidentally taxed

Mitch is a high-earning physician and one of the strategies we take for him each year is a back-door Roth IRA. He sent his taxes to us to review, and we noticed he had a taxable IRA distribution that we didn’t expect. This turned out to be an error, and had we not reviewed his taxes he would have just moved on with an unnecessary overpayment of $2,000

Roth IRA conversions: paying tax once at 12% and getting all the growth tax-free

Karen and her husband are early retirees after a career in high tech. He’s a little older than her, so he is claiming Social Security and she is not yet. Their income is considerably lower now than it was during their working years. They’ve got a couple of years in the 10 and 12% brackets. These are attractive for them, in a few years they’ll be back up in the 30% brackets.

What did we do? We did an IRA conversion to take advantage of these lower brackets. This is when you move money out of your pre-tax IRA, paying tax, and over into your Roth IRA. This forces you to pay the tax early, but all of that money is now growing tax-free.

Using previous years losses to offset gains

George and Regina are retirees living off their Social Security and investment withdrawals. They had a big investment loss about a decade back. This gives them a capital gains loss they’re allowed to ‘carry-forward’  to offset capital gains each year. 

What this allows us to do is withdraw from their IRAs to fill up the ‘lower’ tax brackets 10% and 12%. But then once these are filled up we turn to their brokerage account and incur capital gains there because these are offset by this previous loss. This allows us to minimize their tax burden each year, saving them real money in their retirement.

Catching missed 1099s

Theresa is semi-retired, still working to stay busy but mainly pay for health insurance. She took a withdrawal out of IRA in 2024 to do some much deserved travel, and forgot to give the 1099 to her preparer when she did her taxes.

When we reviewed her taxes we noticed there was no IRA withdrawal at all because the preparer never got the 1099R, but this actually turned out to be a good thing because we over-withheld taxes on the withdrawal, reducing her tax bill in April.

Document and Information Exchange

Jack got his Form 5498 sent to him in May like other IRA investors. He sent it on to CPA, like he should, she asked a simple question back - was this part of a back-door Roth IRA contribution? Jack forwards the question on to me, I send back an answer and his wife’s 5498 so the CPA has that if they need it.

This is so very minor, but we pride ourselves on responding quickly to clients so they can move on and do other things, not dig through Schwab transactions.

Our job is to help clients find financial freedom, and one of the ways we do that is by navigating taxes with them.