Mary is in Good Hands at BWFA
We have always told our clients that they
benefit most when they use all three of
our services: Retirement and Estate
Planning, Investment Management, and
Tax Services. Here is an example of how
our services work together.
Meet Mary Client. She is 55 years old
and living alone. She inherited some
investments and an IRA from her father. Her husband's will
created a trust that pays income to Mary.
Mary is still working, and she also has investment income from
her own accounts and the trust. Her taxable income varies each
year, depending on the results of investment activity in her own
accounts and in the trust accounts. This creates some tax issues
that Mary has to deal with.
The tax issues:
- Mary must file two sets of tax returns-one for herself and a
separate set for the trust.
- Mary must pay quarterly tax payments (also referred to as
estimated tax payments), and the amounts of these payments
can fluctuate according to the investment climate.
- Mary has Required Minimum Distributions (RMDs). She
must calculate and take a distribution from her father's IRA.
Mary also needs to know how much federal and state income
tax to pay on these distributions.
- Mary must calculate the cost basis on her investments. She
receives a stepped-up basis in the investments she inherited
from her father. She'll need to calculate that new basis and
track it for purpose of paying capital gains.
- Mary has carryover tax losses. Because Mary's investments
have decreased in value in 2008, she has some losses
generated by sales of assets in her accounts. These losses will
be used to the extent possible on her 2008 tax return, and the
rest will be carried over and used on future tax returns.
Integrating Services for Mary
BWFA coordinates tax concerns with Mary's financial planning
and investment services. Our experts recommend solutions for
each of these issues and work with her portfolio manager to
implement them. BWFA's coordinated, integrated services
include:
- Reviewing her overall plan. Each year during Mary's
Financial Plan review, we discuss any changes to her financial
situation.
- Preparing tax returns. BWFA prepares both Mary's personal
and trust tax returns. Because we prepare all of Mary's taxes,
we are able to coordinate tax planning for 2009. This includes
notifying her portfolio manager about the money that Mary
will need to draw from her accounts to pay quarterly taxes.
- Paying quarterly estimated taxes. BWFA calculates the
amount of taxes that Mary should pay, both for herself and
the trust. Our Estimated Tax Service revises these estimates
each quarter so that Mary only has to pay what is necessary.
- Calculating and withholding Required Minimum
Distributions. BWFA calculates Mary's required distribution
based on IRS rules. The Tax Department works with her
portfolio manager to plan for the distribution, less the correct
amount of taxes Mary should withhold.
- Accounting for cost basis of investments. The Tax
Department provides guidance to Mary's portfolio manager
on the proper calculation of cost basis for the inherited assets.
We continue to track cost basis for Mary into future years.
- Calculating carryover tax losses. BWFA posts carryover
losses in our client database. This enables Mary's portfolio
manager to manage her investments in a way that minimizes
her taxes.
In Good Hands
Mary is in good hands at BWFA. Our comprehensive services
assure that nothing will slip through the cracks and that Mary is
taking advantage of all appropriate tax strategies. Plus, when tax
laws change in the future, BWFA will revisit Mary's financial
plan and portfolio to make adjustments that are beneficial to her.
Do you know someone like Mary who could use our help? Please
introduce us.We're ready to go to work for her.
Note: We have included a 2008 BWFA Tax Planner insert. Please use
the checklist to help gather together your tax documents and the tables
to look up key IRS deductions, rates, and limits.
