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Monthly Archives: September 2015

Real Estate Investments Could Potentially Lead to Steady Income

Real estate has a reputation for being a profitable albeit complex investment if done correctly. Investing in real estate has historically been an attractive asset class for those willing to take on more risk within this market segment. According to Standard and Poors, the S&P Global REIT index had 15-year annualized returns of 11.22% as of 9/30/2014. There are various methods available for investing in real estate and each has their own unique benefits and drawbacks.

Real Estate Mutual Funds and ETFs

There are hundreds of mutual funds and ETFs whose underlying holdings are real estate based. These funds may directly own Real Estate Investment Trusts (REITs) or companies that deal solely in real estate. They can provide a level of diversification and liquidity which supplies an investor with exposure to the real estate market without putting too much exposure in any one property or property manager.

Physician Financial Advisor

This method of investing does not present the owner with any control over the actual property and offers no direct tax benefits associated with property depreciation. Risks are inherent in all investments and real estate mutual funds are no exception. Typical risks include market risk, interest rate risk, default risk of debt-related investments and a drop in real estate values.

REITs

Publicly-traded REITs are another option for those who’d prefer not to be as actively involved in the purchase and upkeep of properties. The majority of REITs are Equity REITS where they own and operate income-producing real estate. Additionally, some REITs may offer higher dividend yields than some other investments. While they can present a diversification opportunity for a portfolio, they tend to be more narrow in their focus than an index-based mutual fund.

As with mutual funds, there are no direct tax benefits from property depreciation. The restrictions regarding liquidity can also be more expensive from a fee-perspective to the owner than divesting a mutual fund. Another risk associated with REITs is that they are largely interest-rate sensitive, which can result in higher volatility when interest rates change. Publicly-traded REIT share prices can also fluctuate wildly based on regional, national and stock market influences and trends. REITs are a complex product and investors should research the appropriateness based on their individual circumstances prior to investing.

Private Equity

In addition to REIT’s, it’s possible to further diversify a real estate portfolio by investing in a private-equity real estate fund. There are multiple private-equity funds to choose from with varying philosophies and degrees of risk. A conservative fund would typically involve lower risk equity investments in stable U.S. properties using relatively little leverage. A more aggressive fund would typically involve high risk equity investments in U.S. or international properties while using higher leverage.

Private-equity funds are traditionally only open to accredited investors and are not offered to the general public. They do not offer the liquidity and transparency of publicly-traded REITs. The fees and expenses incurred from private-equity real estate funds can be higher than one would normally expect with conventional investments such as mutual funds.

One challenge of the private equity real estate fund model is that investing strategy could be in response to capital flows rather than market conditions, with liquidating assets at predetermined fund termination dates for closed-end funds being a primary example. There are also scenarios where an asset could be sold to meet redemption demands in open-ended funds, which may result in less strategic decision making on acquisitions and divestitures. Be prepared to invest for at least 10 years before being able to realistically evaluate the success of the investment.

Direct Ownership

An investor also has the option to independently secure a property in their own name by paying in cash or obtaining a loan to purchase the asset. Buying real estate within an LLC may also offer increased asset protection. This could be a rental home or a building occupied by the LLC.

Investors who prefer to have direct ownership and control of their assets might find this strategy advantageous. However, the increased autonomy comes with a cost. A large repair or vacancy could potentially erode monthly or even annual profits. The task of researching properties and the maintenance and upkeep once purchased can easily take up a greater amount of time than anticipated. Many physicians who go that route may erode their investment returns by outsourcing these responsibilities to a property manager.

To match the diversification offered by many REITs, an individual would need to own multiple properties. A drawback of this strategy is that a lot of cash will be tied up in assets that are illiquid. Another risk is loss of money on the sale of the property or assuming full liability for any incident that occurs on the property past the limits of insurance coverage.

Risk is inherent with real estate, as with any investment. It may offer an opportunity to supplement and/or diversify income. Leveraging tax deductions and other asset protection strategies can increase the likelihood of having a consistent income stream from real estate investments. As with any investment, carefully consider the associated risks and your own financial situation before investing.

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This article was written by Larson Financial Group, LLC and provided courtesy of Paul Larson, President and CEO. Advisory Services offered through Larson Financial Group, LLC, a Registered Investment Advisor. Securities offered through Larson Financial Securities, LLC, Member FINRA/SIPC.

Information gathered from sources believed to be reliable but is not guaranteed. This is not an offer to sell nor a solicitation to buy any security or investment vehicle described herein. Diversification does not guarantee a profit or protect against loss. Consider objectives, risks and associated fees and expenses before investing. REITs and real estate investing are complex in nature. Carefully review the prospectus or other offering documents. Quoted index performance is for illustration purposes only. Indices are unmanaged and it is not possible to invest in an index itself.

Physician Tax Returns Could Present Challenges

We’ve all felt that time crunch as tax deadlines approach. In addition to being complex, tax code is subject to change at any time. Doctors are among the busiest of professionals and have little spare time to learn about the latest developments in tax law. In preparing your own taxes, you run the risk of missing out on potential tax deductions for doctors that could reduce your taxable income or unknowingly exposing yourself to an audit from the IRS.

Income and Material Participation

It’s important to recognize commonly used tax terms due to the nuances unique to physician tax returns. Having a good understanding of how income is defined will help clarify some of the more complicated tax concepts and strategies. Active income (sometimes called earned income) is what is reported on W2 and 1099 documents. This income is derived from your labor and is the most heavily taxed form of income. In addition to Federal and state income taxes, you’re also subject to Social Security and Medicare taxes also known as FICA witholdings. You may also be obligated to pay local income taxes depending on the municipality in which you practice or live.

Physician Tax Deductions

Passive income (or unearned income) is income derived from your assets instead of your labor. One example of this would be any income from your investment portfolio such as interest, dividends or capital gains. On the federal level, you could be subject to either long-term or short-term capital gains depending on how long you’ve held an investment. You may be responsible for paying taxes at your state’s rate as well. The cost of acquiring and selling an investment will affect your cost basis, so accurately tracking this information may lower your overall tax consequences. For tax purposes, cost basis is defined as the original value of an asset (usually the purchase price) which can be adjusted for stock splits, dividends, commissions and return of capital distributions. (1)

Passive income or losses are defined as activities in which the tax payer does not materially participate. There are several criteria for defining material participation, and you only need to meet one to qualify (2):

  • Does the taxpayer and/or spouse work more than 500 hours a year in the business?
  • Does the taxpayer do most of the work? Even if 500 hour test is not met, is his or her participation the only activity in the business? (ex. Sole proprietor with no employees)
  • Does the taxpayer work more than 100 hours and no one works more hours?
  • Does the taxpayer have several passive activities in which he participates between 100-500 hours each and the total time is more than 500 hours? Cannot include rental activities or activities involving portfolio or investment income.
  • Did the taxpayer materially participate for any 5 out of the 10 preceding years (need not be consecutive)?
  • Did the taxpayer materially participate in a personal service activity for any 3 prior years (need not be consecutive)? Personal service activities include fields of health, law, engineering, architecture, accounting, actuarial science, performing arts and consulting.
  • Do the facts and circumstances indicate taxpayer is materially participating? Test does not apply unless taxpayer worked more than 100 hours a year. Furthermore, it does not apply if any person other than the taxpayer received compensation for managing the activity or if any person other than the taxpayer spent more hours managing the activity.

Tax Deductions for Doctors

Did you know that many of the professional expenses that are required of you as a physician are tax deductible? Continuing medical expenses, medical malpractice insurance and membership dues for professional and public service organizations can be deducted. (3) There is also physician tax deductions for practices that have incurred losses or damages due to a natural disaster. You automatically qualify for this deduction if your practice is located in an official federal disaster area. (4)

For self-employed doctors and practice owners, travel related to the operation of your practice is fully deductible. However, typical commuting expenses are non-deductible. Keeping adequate travel records may allow you to qualify for a $0.55 per mile deduction. Most business meals and entertainment expenses are only partially deductible. To account for these, you should keep a log noting the amount spent, date, time, place of expenditure and business purpose.

There are numerous options for structuring your business from a legal and tax entity standpoint such as sole proprietorship, partnership, or limited liability company. Each form has advantages and disadvantages, and your choice will impact how you pay your taxes and the amount that you’ll owe.

Rental Income

Real estate investments and rental properties are a popular source of alternative income. Historically, real estate has been an attractive investment by providing 11.22% annualized returns over the past 15 years, according to the S&P Global REIT Index. However, it should not be assumed that past performance is indicative of future results, and fluctuations do occur up and down. As you can imagine, there are quite a few guidelines in regards to claiming rental properties on your tax return.

With real estate, your basis in a property is not fixed. (5) This also applies to your personal residence as well, but rules regarding taxation of a personal residence differ from rental property. The cost basis of a property can typically be reduced by items that represent a return of your cost, including an insurance payment you receive as a result of a casualty or theft. (6) Remember, it’s important to keep track of any renovations or improvements you’ve made that could affect the value of your property.

One important distinction to be aware of in the context of adjusted cost basis is the difference between property expenses and depreciation. According to IRS.gov, “depreciation is an income tax deduction taken against expenses that allows a taxpayer to recover the cost basis of a property. It is an annual allowance for the wear and tear or obsolescence of the property.” This mainly applies to tangible property like machinery or furniture but there are some intangible properties such as patents or computer software that are depreciable as well. In order to be eligible you must own the property and use it for a business, and it must have a determinable useful life of more than one year. (7) For example, having a new roof put on your practice’s building is depreciable whereas repairing an existing roof is classified as an expense.

When selling business property, you need to be aware of potential recapture situations where you would have to add back the deduction from a previous year to your current income. You can defer paying taxes on any gains under IRC Section 1031, allowing you to reinvest the proceeds in a similar property as part of a qualifying “like-kind” exchange. (8) To qualify for this exchange, you have to identify at least three “like-kind” properties within 45 days of the transaction, and then close on one of these properties within 180 days from the date of sale. This can be tricky due to the complex nature of real estate transactions, so professional assistance is often necessary.

This is just scratching the surface of the tax code as it relates to physicians. There are countless exceptions and minutiae that have to be considered on a case-by-case basis. You shouldn’t make decisions based solely on the recommendations of your colleagues or from articles you have read. Getting assistance from a trusted professional can reduce the uncertainty regarding these decisions.

Have Questions?

Advisory Services offered through Larson Financial Group, LLC, a Registered Investment Advisor. Securities offered through Larson Financial Securities, LLC, Member FINRA/SIPC. Medical Malpractice Insurance offered through Larson Financial Brokerage, LLC

Larson Financial Group, Larson Financial Securities, and their representatives do not provide legal or tax advice. Please consult the appropriate professional regarding your legal or tax planning needs.

(1)http://www.investopedia.com/terms/c/costbasis.asp
(2) http://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Passive-Activity-Loss-ATG-Chapter-4-Material-Participation
(3) http://www.ventocpa.com/about_us/
(4) http://www.physicianspractice.com/blog/income-tax-deductions-commonly-overlooked-doctors
(5) http://www.investopedia.com/terms/a/adjustedbasis.asp
(6) http://www.investopedia.com/articles/investing/060313/what-determines-your-cost-basis.asp
(7) http://www.investopedia.com/walkthrough/corporate-finance/2/depreciation/other-considerations.aspx
(8) http://www.investopedia.com/terms/s/section1031.asp

Sell or Rent: Deciding What to Do with Your Home

By Elaine Floyd

The decision on whether to sell or rent your home is trickier than other financial decisions because of the emotional ties you have to your home. To make the best decision possible, evaluate the income, growth, and tax advantages of selling vs. renting and how it would advance your long-term goals.

If you are relocating due to a job change or retirement, you may want to keep your present home and rent it out rather than selling it and transferring the equity to a new home or reinvesting the proceeds.

The first question to ask yourself is why are you considering this strategy? Here are some of the more common reasons:

  1. Your home has appreciated considerably and you don’t want to sell while prices are still in an uptrend.
  2. You would enjoy receiving rental income as a supplement to other retirement incomes
  3. You are not sure the relocation is permanent and want to keep the home in case you decide to move back.
  4. You want to keep the home in the family for children or grandchildren.

Understanding your long-term objectives will provide direction in analyzing the sell-versus-rent question.

Appreciation

If your main objective is further price appreciation, when will you know when it’s time to sell? In other words, what is your exit strategy? If you see the home as a growth investment, is this the best growth investment right now, considering your objectives and the rest of your portfolio? If you had a lump sum of cash equal to the equity in the home, would you buy this home and rent it out or invest in something else?

Physician Mortgage Loans

The purpose in this line of questioning is to find out if you have an unhealthy attachment to the home as an investment—not uncommon when a particular asset has “been good” to you. If emotions are clouding your judgment, try viewing this asset within the context of other possible investments and ask yourself how much more you think the house might appreciate. If it’s already worth far more than you ever imagined, you might deem the house overvalued and reconsider the wisdom of keeping it.

Or it could be that your home hasn’t appreciated very much. In the event you have a loss on the home, you may be better off converting it to a rental before selling, since a loss on a personal residence is not tax deductible. Maintaining it as a rental may give the home time to appreciate. If it doesn’t, you could go ahead and sell it after renting it for a while and claim the loss on your tax return. (Be aware, however, that the IRS has disallowed loss deductions for rentals preceding a sale on the ground that there was no “profit motive” for the rental.) The property’s basis would be the lesser of adjusted cost basis or fair market value at the time of conversion and would need to be documented in order to claim the loss.

Income

Rental income can be a good source of retirement income—as long as the numbers work. One advantage of rental income is that it generally rises with inflation. However, the ability to raise rents varies with supply and demand in the local area, and this may change during the ownership period.

If you are keeping the house for income, you will need to do a market analysis to determine the appropriate amount of rent to charge and you will also need to fully understand the costs of ownership (maintenance, repairs, insurance, and so forth) in order to determine your net cash flow. Consultation with real estate agents and CPAs may be necessary.

There are numerous online calculators that can help you decide if your home is the best source of income or if you could do better with another investment. Most calculators will ask you for the expected monthly rent, ownership costs (taxes, capital improvements, and monthly maintenance costs), and the likely sale price of the home in order to calculate the “capitalization rate,” which you can then compare with the rate on long-term Treasuries.

If the cap rate is higher than the current rate on Treasuries, keeping the home as a rental is a good deal; if not, it’s not. Make sure you are not forcing the numbers to work by assuming too-high rent or too-low expenses. Accurate assumptions are crucial to understanding the investment merits of the deal. In the end, the sell-versus-rent decision will hinge on the ratio of rents to prices in the your neighborhood. Low rents and high home prices do not bode well for a client who’s thinking of leveraging his equity for an ongoing income stream.

In addition to the ratio of rents to prices, you need to understand the tax rules pertaining to income property. Rental income is taxable; however, the following expenses are deductible from rental income on Schedule E of Form 1040:

  • Real estate taxes
  • Management expenses
  • Maintenance expenses
  • Traveling expenses to look after the property
  • Legal expenses
  • Mortgage interest
  • Insurance premiums
  • Depreciation of the building (not the land) based on a 27 1/2 year recovery period
  • Depreciation of furniture, carpeting, and appliances based on a five-year recovery period

These tax breaks may make the deal more attractive than you had anticipated. On the other hand, the above list may make you aware of expenses you hadn’t thought about when calculating net cash flow. If you are investing for income, you need to be realistic about how much that net income will be.

Temporary rental

If you aren’t sure that the relocation will be permanent and you want to have the option of moving back into the home, renting it out for a period of time may be a good solution. However, you should keep an eye on the calendar and, if you’re going to sell, do it within three years in order to qualify for the $250,000 / $500,000 capital gains tax exclusion. According to the rules, even if a home has been converted to a rental, sellers can qualify for the capital gains tax exclusion if they’ve lived in the home as a principal residence two out of the five years preceding sale. Be sure you allow enough time to get the house on the market, sold, and closed before the three-year window closes.

Leaving it to heirs

As more young people get priced out of the housing market, you may want to keep your home for your children and grandchildren, renting them to the kids or to unrelated tenants. This is also a good tax-planning strategy because your heirs will receive a step-up in basis when they inherit the property. Remember, if you are renting the house to family members at below-market rates, you may only deduct expenses to the extent of the actual rent received (i.e., you can’t claim excess losses).

Analyzing the investment merits of a principal residence converted to a rental property is slightly trickier than analyzing any other investment because of your emotional connection to the property. You’ve enjoyed living in the home, made money on the home, and now want to keep the home as an investment. But as with any investment, it must be evaluated on the basis of its economic merits in light of your personal objectives and taking into account the property’s prospects for income, growth, and/or tax advantages.

As director of retirement and life planning for Horsesmouth, Elaine Floyd helps advisors better serve their clients by understanding the practical and technical aspects of retirement income planning. A former wirehouse broker, she earned her CFP designation in 1986.

Elaine Floyd is not affiliated with Larson Financial Group.

IMPORTANT NOTICE: This reprint is provided exclusively for use by the licensee, including for client education, and is subject to applicable copyright laws. Unauthorized use, reproduction or distribution of this material is a violation of federal law and punishable by civil and criminal penalty. This material is furnished “as is” without warranty of any kind. Its accuracy and completeness is not guaranteed and all warranties expressed or implied are hereby excluded.

Have Questions?

Advisory Services offered through Larson Financial Group, LLC, a Registered Investment Advisor. Securities offered through Larson Financial Securities, LLC, Member FINRA/SIPC.

Copyright © 2015 by Horsesmouth, LLC. All Rights Reserved

Applying the Time Value of Money Principle

Imagine a friend owes you $1,000. If you had the choice, would you rather have this money repaid to you right away in one payment or spread out over a year in four installment payments? The vast majority would prefer the former, and rightly so. This goes far beyond the instant gratification of receiving the money sooner rather than later. The simple truth is that money has greater earning capacity now than in the future, and $1,000 today is more valuable than $1,000 a year from now.

This concept is called time value of money, and is a fundamental principle in business and finance. This philosophy that states the earlier you receive money, the more earning potential it has. You can invest a dollar today with the potential to earn a return on that investment in the form of interest or dividend payments. Compound interest is always assumed in time value of money applications.

Physician Mortgage Loans

Compound interest measures the impact of the time value of money over multiple periods into the future, where the interest is added to the original amount. Therefore, you are not only earning interest on the principal amount invested, but you’re also earning interest on the interest. For example, if you invest $1,000 at 10% for 20 years, its value after 20 years will be $6,727, assuming you don’t withdraw the interest amount earned each year with the investment.

The opposite of compounding is discounting, meaning that it is essentially the inverse of growth. This determines the present value of money to be received in the future (as a lump sum and/or as periodic payments). The present value is determined by applying a discount rate to the sums of money to be received in the future. This methodology can be used to analyze any investment that has an annual cash payment and a terminal or salvage value at the end of the time period.

CEOs, investors and entrepreneurs use this theory frequently when dealing with loans, valuing companies and budgeting capital. However, there are several ways this concept can be applicable to the life of a physician as well, such as comparing investment alternatives and making decisions regarding your physician mortgage loans and medical school loan repayment.

Practical Applications

Let’s use purchasing a home as an example. One of the first decisions in this process is determining how large of a down payment to make and how much will be financed. Since there are several factors at play, there’s no one-size-fits-all answer.

In some cases, you can obtain a more favorable interest rate by putting more money down. However, you need to assess the economic component of this decision. Is the potential savings from a favorable interest rate more than the potential earnings if invested? Would you have adequate money for emergency expenses? Once this cash goes into a down payment, that money would have to be “loaned against” for future use.

This concept can also be useful to those who already have physician mortgage loans. You might find yourself in a position where you can liquidate your investments and pay off your home. But, is that the smart thing to do? Economic and asset protection factors may suggest that maintaining a mortgage makes the most sense, but the emotional toll of debt needs to also be assessed. Debt impacts us on a psychological level, and if you’ll sleep better at night with a house that is paid off in full, then that may be the approach that makes the most sense for your individual situation.

Time value of money could also influence your strategy for medical school loan repayment. It may be tempting to pay off these loans in full, however, if the interest rates on your student loans are favorable it may not be a priority. You could save this money for investment opportunities or pay off other debts with higher interest rates.

Time is Money

Since money has time value, the present value of a promised future amount is worth less the longer you have to wait to receive it. Real estate investors frequently calculate present value to estimate their profits on a deal. Future value is the amount that is obtained by forecasting the value of a present payment or a series of payments at the given rate of interest. We naturally expect the future value to be greater than the present value due to the time value of money. The difference between the two depends on the number of compounding periods involved and the interest rate. Suppose you invest $1,000 in a savings account that pays 10% interest per year. The future value of that investment would be $1,100 one year after the money was deposited.

The value of the money you have now is not the same as it will be in the future. There are several reasons why this is commonly accepted besides the accrual of interest or dividends. Inflation, for one, exacerbates this trend by decreasing the purchasing value of an amount of money. Receiving the money immediately also reduces the risk of default. As you can see, “time is money” is true in the literal sense.

Have Questions?

This article if for informational purposes only and should not be construed as tax advice. Advisory Services offered through Larson Financial Group, LLC, a Registered Investment Advisor. Securities offered through Larson Financial Securities, LLC, Member FINRA/SIPC.

Larson Financial Group, Larson Financial Securities, and their representatives do not provide legal or tax advice. Please consult the appropriate professional regarding your legal or tax planning needs.

Tax Season: 8 Questions to Ask Your CPA

By Debra Taylor, CPA/PFS, Esq., CDFA

Preparing tax returns is rarely fun, but it’s important. A good discussion with your tax preparer and financial advisor can help you manage your tax bill for both this year and next.

For many of us, meetings to prepare a tax return are like a trip to the dentist—we want to get in and out as quickly and painlessly as possible.

Physician Tax Deductions

However, there are many new rules to consider and questions to ask your tax preparer and your financial advisor to make sure you’re getting the best guidance possible. Use this list of questions to get the discussion going:

1. How will major life events and changes in my personal life affect my taxes?

Many people don’t realize how certain life events and milestones can affect their tax situation. That’s why it’s important to make your tax preparer aware of any life events or changes to your tax situation.

If any of your children matriculated to a college in 2014, they may qualify for up to $4,000 in deductions for education costs, the American Opportunity Tax Credit, or the Lifetime Learning Credit.

If you purchased a second home, you may qualify for a second set of home deductions for real estate taxes and mortgage interest.

If you got married this year, had a child, got divorced, or lost a loved one, your filing status may have changed as well as your deductions.

2. Should I have my employer make adjustments to my withholdings?

If you have had children, gotten married or divorced, or can no longer claim your adult children as dependents, consider making changes on your W-4 Forms to adjust your exemptions.

In addition, if you are receiving large tax refunds (or are saddled with a large tax bill in April), you may want to adjust your withholdings in an effort to smooth your cash flow.

3. Should I increase my retirement plan contributions?

Retirement plan contribution limits have been raised for 2015. Contributions to retirement plans and IRA’s accomplish two things. First, they may reduce your taxable income, thereby lessening your tax burden, and second, they can help you fund retirement and stay on track to meet your financial goals.

Retirement Plan Contribution Limits

Tax Deductions for Doctors

If you are changing jobs in 2015, coordinate with your new company’s human resources department to ensure that you do not exceed the maximum contribution to your 401(k) during the year due to making 401(k) contributions from both jobs.

Also consult with your tax professional regarding making contributions to a traditional or Roth IRA, in addition to your contributions to employer-sponsored plans. Contributions to an IRA are allowed regardless of income level and are not limited by contributions to an employer-sponsored plans (though the deductibility of contributions may be affected).

4. Should I consider a conversion to a Roth IRA?

 

A Roth IRA conversion allows you to move assets from a tax-deferred IRA to a potentially tax-free Roth IRA. You would incur a tax liability for the amount you convert in 2015. However, the assets held in a Roth IRA are not subject to a required minimum distribution and can eventually be withdrawn tax-free.

Ask your CPA to prepare a projection of the tax liability of a partial (or total) Roth IRA conversion. Roth conversions have tax, investing, and retirement considerations and the decision whether or not to convert should be made after a discussion with your tax professional and financial advisor.

5. How has the Affordable Care Act (ACA) affected my taxes?

Last year, you may have been subject to the 3.8% Medicare surtax on net investment income over $250,000 for those married filing jointly ($125,000 if married filing separately and $200,000 for all other filers). This year, you will need to provide proof that you were insured for the entire year, or pay a penalty.

If you secured coverage through a health care exchange, you will receive Form 1095-A. If your employer provides coverage, you will receive Form 1095-B or 1095-C (depending on whether the employer self-insures or provides a group plan).

For some individuals, the ACA may be a net positive when it comes to taxes paid. Small business owners may qualify for tax credits up to 50% of the premiums paid for their employees’ health insurance premiums. If you pay all, or part, of your employees’ health insurance premiums, consult with your tax professional to determine if you qualify for a tax credit.

6. Can you help me to estimate my 2015 tax bill?

Review your projected income, deductions, and planned sales of assets and other contemplated financial events with your tax professional. Ask your CPA to prepare a projection of your 2015 tax bill and help you strategize how to reduce your tax liabilities for the coming year.

If you are self-employed, ask your tax professional if your quarterly payments will fall within the safe harbor to avoid paying penalties and interest for any additional tax you may own in 2015.

7. How can I lower my tax bill for next year?

Taxes are on the rise. After you receive your projected 2015 income and tax liability, ask if there is anything you can do throughout the year to reduce your tax burden. Your CPA can help you maximize your deductions, properly manage (and hopefully maximize) your retirement plan contributions, and take advantage of any tax credits that may be available to you.

8. Is there anything that I should be reviewing with my financial advisor about my investments?

Various tax code changes including the 3.8% Medicare surtax, changes to capital gains tax rates, and compressed tax brackets for trusts are making tax considerations an increasingly important part of investments decisions.

Ask your CPA about the effectiveness of tax-loss harvesting throughout the year. Or if you have a large IRA, you may want to pay fees using non-retirement funds in an effort to maximize your deduction for investment management.

Don’t waste a good meeting!

Tax time is an opportunity to open the lines of communication between your tax professionals and your financial advisors. A good working relationship between all of your trusted advisors will help ensure you are getting tax-efficient management for all of your investments and financial affairs.

Have Questions?

Debra Taylor, CPA/PFS, Esq., CDFA, writes on tax and retirement planning for Horsesmouth, an independent organization providing unbiased insight into the critical issues facing financial advisors and their clients.

Debra Taylor is not affiliated with Larson Financial Group.

IMPORTANT NOTICE: This reprint is provided exclusively for use by the licensee, including for client education, and is subject to applicable copyright laws. Unauthorized use, reproduction or distribution of this material is a violation of federal law and punishable by civil and criminal penalty. This material is furnished “as is” without warranty of any kind. Its accuracy and completeness is not guaranteed and all warranties expressed or implied are hereby excluded.

Advisory Services offered through Larson Financial Group, LLC, a Registered Investment Advisor. Securities offered through Larson Financial Securities, LLC, Member FINRA/SIPC.

Copyright © 2015 by Horsesmouth, LLC. All Rights Reserved