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.