Does your financial planner review your tax return? If not, you’re probably overpaying the IRS.
If you’re like me, you don’t mind paying the tax that you owe — but overpaying taxes…no thank you!
As a financial advisor and Certified Financial Planner, it’s my job to make sure none of my clients are overpaying their taxes. So during tax time, I’m keeping an eye out for any opportunities to help reduce the tax burden for my clients.
I do a tax return review for many clients each year. During one of these tax return reviews, I noticed a client had a bit of 1099 income on her 2022 return.
It turned out that my client had been working as an employee at a real estate firm. But at the end of 2022, she became a contractor.
In 2023, her income jumped way up and she ended up in one of the highest federal tax brackets.
She’d have to pay 32% in federal taxes and 9.85% in state taxes.
Luckily, there was a massive opportunity to save on tax.
My client can save up to $73,500 (depending on her total earnings) in a Solo 401k for 2023. I reached out to her CPA, got his blessing on the Solo 401(k) strategy, and implemented it. The result?
She’ll save more than $29,000.
She also dropped out of the 32% federal bracket into the 24% bracket. For her state tax she went from the 9.85% MN bracket to 7.85%. This is a total drop to her marginal rate of 14%.
How did we do it?
We consolidated her IRA into the Solo 401k plan and implemented a backdoor Roth strategy.
Thanks to having proper tax planning done by a financial advisor, she got to reap these benefits:
Increased her pre-tax retirement account balance by $73,500
Saved more than $29,000 on her 2023 tax return
Increased Roth IRA balance by $7,000
A triple win! All from a review of her tax return.
Yes, taxes may seem dry. But when you get to save money at tax time…it feels great!
If you’re ready to partner with a financial advisor who can help you manage your big picture financial plan, get in touch.
About the Author
Michael Urch
As a CERTIFIED FINANCIAL PLANNER,™ Michael advises his clients on insurance, investment, retirement income, tax, and estate planning. He prides himself on being a professional advisor who puts planning before products. Michael likes to start with each client’s “why.” By understanding what’s truly important to them, the “what” of investment and planning strategies can be custom-designed to support their long-term ambitions.
This information is not intended to be a substitute for specific individualized tax or legal advice. We suggest that you discuss your specific situation with a qualified tax or legal advisor. The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.
This is a hypothetical situation based on real life examples. Names and circumstances have been changed. The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investments or strategies may be appropriate for you, consult your advisor prior to investing.