Most retirees don’t anticipate all the expenses they will experience during retirement, especially taxes. More often than not, most are faced with tax issues. Why? Because when it comes to taxes, not all money is created equal.
Taxes are a topic everyone is concerned about, but most don’t want to deal with it any more than they have to. This can result in someone not taking the time to go back through their taxes for the year and making sure everything was done correctly.
Having a second opinion tax review is very beneficial to help you determine if you have completed your taxes correctly for the year. Our office conducts second opinions for business and personal taxes year round. To begin, we simply ask that you set up an appointment to meet with us and bring copies of your past year’s tax returns, investment statements and any other pertinent data. We go through the documents to get a general idea or an overview of what your total situation is. Then, we take the information you provide and analyze what was filed for accuracy and tax advantages.
There are many benefits to conducting a second opinion. For example, if you have a big tax bill to pay, the second opinion helps you think strategically and critically about what is in your tax return. Finding an error on your return may result in receiving some extra money back or even lowering your tax bill. But, it can also go the other way. However, there is good news! Even if you find an error that causes you to owe a little bit more, it is still a great idea to get that cleaned up and fixed on your own timetable, rather than the IRS catching the mistake a few years down the road.
In addition to getting a second opinion review, knowing the multiple ways you can PREPARE for taxes during retirement can help put you in the tax bracket you hoped for. Your retirement and taxes are closely intertwined, and it is valuable to implement a tax strategy in your retirement planning. A tax strategy will help you understand tax ramifications of the investment and financial decisions you make. A good tax strategy might include knowing when to withdraw from your various retirement plans, maximize tax-free income, time the sale of rentals and make sure you take full advantage of itemized deductions. It is important that you meet with financial professionals, such as American Financial Security, when discussing tax and financial options to help make sure you are able to determine which tax AND financial strategy is right for you.
Roth IRAs can be another helpful tool when preparing for taxes that you may face in retirement. Many retirement savings accounts are tax deferred. With the Roth IRA, the tax savings are on the back end, offering you years of potential tax-free growth followed by tax-free withdrawals of qualified distributions. To convert to a Roth IRA, you have to pay the income taxes upfront on the amount you are converting. In an ideal situation, tax free withdrawals you make in the future will outweigh the upfront tax hit. But again, you should work with a tax advisor to understand the full ramifications before converting. The Roth IRA is not for everyone.
Another beneficial tool is life insurance, which is often overlooked. We believe life insurance is one of the best tax-free devices available. It holds some of the greatest value for your financial lives during life and upon death. By having a life insurance strategy, your loved ones are financially protected upon your death and the life insurance is not taxed. In some situations, you may have tax-free money available to you during your lifetime in the form of tax-free loans.
In addition, Arizona provides many unique tax advantages. For instance, there is no tax on Social Security, there is a partial exclusion on Arizona State Retirement Pensions, and a wonderful array of dollar-for-dollar tax credits.
People’s tax situations change and vary from person to person and, yes, even year to year. That is why we would like to meet with you and help make sure you have the information you need to make the best decisions for you and your retirement needs. QCBN
Ronald F. Stevenson & Barbara E. Clark own American Financial Security, LLC. They specialize in Retirement Income Planning, Social Security Maximization, Tax Free Income Design, Personal & Corporate Tax Preparation and Planning. For more information, call 928-771-8368 or visit www.AmericanFinancialSecurity.net, 3112 Clearwater Dr., Suite B, Prescott, AZ 86305.