Financial Focus: Taxopoly — Mastering Your Strategy in the Game of Taxes

Eric Springer is the founder of Brookstone Investments in Lowell and provides us with information and tips to improve our financial wellbeing. 

What if you had the same identical tax information prepared by different accountants?

How about three different accountants?

The returns would likely yield different results. How do I know? I did it. In 2021, I had three different accountants prepare my taxes for one tax year to test my theory.

Although there was an expense to my experiment, it proved useful to my personal understanding that preparing taxes is part creative and part application of the tax code. There’s so much at stake when you have a year’s worth of income on the chopping block. Of course, I’m not suggesting this method is for everyone, but it does prove the absolute importance and value of receiving good advice.

The tax code is not so different then your favorite board game. In both, there are a set of rules that are the same for everyone, no matter your background. How we interpret the rules and decide to implement them in our game strategy determines our outcome. When strategizing the tax code, there are strategies that could benefit you, even if you have a simple return.

Look at it this way, why are some people great at board games while others struggle? Same rules for everyone, right? Although you may not win at Monopoly, the right advice can help you win with your tax planning.

How do you find the best fit? Ask questions. Ask people in your life that you respect — ideally in similar situations — who have had a successful outcome or that continue to be savvy with money. You know the ones, we all have them in our lives. Chances are they’re laying the groundwork to utilize smart tax preparation and planning to their advantage. Ask who they are using for advice and if they would be open to connecting with you.

Roth conversions are a hot topic and for a good reason. When properly structured, they can provide tax-free retirement income. Most of us will never get away from paying at least some taxes, but what if you could receive part of your income from a tax free source, like a Roth IRA? That could potentially result in your tax bracket staying as low as possible. This is because much of your income does not count towards a higher tax bracket if you have received the income from a Roth IRA.

This is one example of an idea and strategy not endorsed or suggested by every accountant. The reality is, a qualified and knowledgeable accountant that you are comfortable with can make a significant impact on the strength of your financial plan. I’ve seen it in action with many of my clients when I have joined them in meetings with their accountants. This has given me a front row look into a range of situations, from business sales and buyouts to simple income planning. Using IRAs and 401Ks, both traditional and Roth, to minimize taxes is also very important.

I have seen how many different approaches there can be to the same scenario. I wonder if the accountants themselves realize how they all approach things differently. Things like:

  • Should you structure your business as an S Corp., C Corp., or LLC?
  • How will you depreciate assets?
  • Will you pay a spouse an income thereby increasing FICA expenses, but potentially increasing his or her Social Security?
  • How about renting to yourself?
  • Retirement plan selections?
  • Roth IRA’s?
  • Would it make sense to take a portion of income as a consultant to take advantage of the 20% pass-through deduction that began in 2018 and is scheduled to sunset on December 31, 2025?

This is a very small sliver of options and decisions that could result in a vastly different outcome if chosen in the best way possible. What’s best for you? There’s only one way to find out: continue to look for potential changes that could benefit you now or in the future. The answer is ever changing right along with the tax code.

One thing I know for sure is this: information is king so you might want to find an accountant that’s good at board games!

Eric founded Brookstone Investments in 1998 to serve Michigan residents and their families. He provides customized retirement planning solutions based on clients’ individual needs and goals using tax-efficient distribution strategies.

The passion Eric has for his work is evident in the personalized care he gives his clients. His focus is always on what’s best for his clients and, as an independent financial advisor, he provides the time and attention to detail they need. He does not work for a brokerage firm or a bank and is therefore able to make recommendations based solely on helping his clients realize their retirement objectives.

A lifelong resident of West Michigan, Eric now lives with his wife in Alto, Michigan. In his spare time, Eric enjoys family time with his daughters, photography, hunting, fishing and generally spending time outdoors.

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