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Guest Column

5 Crucial Questions to Ask About Your Tax Plan


The quote "nothing can be said to be certain, except death and taxes" is generally attributed to Benjamin Franklin. So, it seems ironic that although most of us know this to be true, many people are not actively preparing for either.

Tax planning is a vital part of nearly every aspect of wealth management. In many cases, taxes represent the largest single expense for high-net-worth families. It's generally reported that millions of Americans routinely fail to take deductions they're entitled to, overpaying their taxes, collectively by billions of dollars. And it's estimated more than 80% of tax returns have errors or missed deductions.

Here are five crucial questions that all taxpayers need to answer: 

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  1. What is my overall tax plan? 
  2. What am I doing to reduce taxes for the future? 
  3. When should I make changes? 
  4. How do I know what changes to make?
  5. Who is going to help me with all of this? 

Usually those questions are answered by silence and blank stares. The good news is that most people are willing to improve their future outcomes by following some simple strategies. 

Understand the past: Every accountant is a historian; they take what happened the prior year and report it as fact. Some people rate a good and bad accountant simply by the amount of refund they receive, instead of truly understanding the tax process. The past is the past, but it can be your teacher. Learn from your mistakes and apply them to the present. Most tax reduction strategies have to be completed by year-end. In other words, you must act proactively during the current year if you want to reduce taxes for your next filing.

Don't do it alone: Being proactive means anticipating future issues, needs, or changes. Work with proactive advisers who not only help you memorialize the past but also help you plan for the future. Some traits of proactive adviser? They ask more questions, collect more data, explain their strategies, and deliver a complete picture.

Become tax return literate: Most Americans have some awareness of the tax return. They grasp the basics like the filing deadline of April 15; the term refund; or the abbreviation IRS. Better to think of your tax return in the same way as the blood tests your doctor orders for your annual physical. The annual tax filing gives a complete reading of your finances. The IRS regards it as a verification document. Knowing how to read a Form 1040 is really the key to your tax return literacy. Your income and expenses, what you paid, and what you owe or get back -- all of it appears on the 1040.

The IRS has created a site called Understanding Taxes: The Quick and Simple Way to Understand Your Taxes, a free interactive online tool that is used by teachers, students and the general public for learning about tax returns. 

Roth IRA conversion: The saying I always use is, "Paying taxes once is your obligation, paying twice is your fault." Typically, qualified and IRA funds have never been taxed, but continues to grow. In most cases, these qualified assets are not thought about until later in life. One of the biggest questions you must answer before converting to a Roth IRA is how to pay for the taxes that will be due when the conversion is executed. When converting to a Roth IRA, you will trigger a taxable event, so your ability to pay that tax with outside money should be a large factor in your decision. In nearly all cases, the money to pay the tax on a Roth IRA conversion should come from outside funds in order for the conversion to make sense. Drill down with further questions and details to consider in To Convert or Not Convert to a Roth IRA in 5 Easy Steps.

About the author: Walter Pardo is CEO of Wealth Financial Partners and WFP Tax Partners, and a member of Ed Slott's Elite IRA Advisor Group. For more information about this group, or to find a member near you, visit Securities and advisory services through Independent Financial Group, a registered broker-dealer and investment advisory firm. Member FINRA/SIPC. WFP & IFG are unaffiliated entities. 

WFP is located at 22 Church Street in Liberty Corner, NJ. 877.714.2362.

The opinions expressed herein are the writer's alone, and do not reflect the opinions of or anyone who works for is not responsible for the accuracy of any of the information supplied by the writer. Click here to submit a Guest Column.

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