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Become a Year-Round Tax Hero

Prove your value to clients by saving them time and money on taxes.

Helen Modly and Tommie Monez, 12/08/2011

The rush to implement last-minute tax strategies is again upon us. But how about the rest of the year? Adopt these year-round strategies to prove your value to clients by saving them money on taxes while reducing the time they spend on tax matters.

Eliminate the Chore of Estimated Tax Payments
Remembering to make quarterly estimated tax payments is not only a nuisance, but it costs money when clients forget. Here are some steps to ease the burden:

1. Pay the entire next year's estimate in April. Seriously. We have several retired clients that gladly make that one payment to just be done with it. They love the idea that the specter of the IRS doesn't hang over them all year long. With today's low interest rates there is very little downside if they have the cash available.

2. Sign up for electronic estimated tax payments using the Electronic Federal Tax Payment System (EFTPS) at www.eftps.gov. Payments can be set to be pulled automatically and can be scheduled up to 365 days in advance for individuals. Many, but not all, states also provide electronic payment capability for state taxes.

3. Adjust pension withholding to cover the estimated tax or safe harbor amount (100% or 110% of the prior year's tax obligation).

4. Use IRA required minimum distributions (RMD) to make tax payments. This is treated like withholding from wages in that it is considered as paid throughout the year no matter when the taxes are withheld. High net worth clients with large RMDs will especially appreciate this strategy. We usually schedule our RMDs for mid-November so if there is a projected estimated tax liability, we have it withheld it from the RMD.

Take Advantage of Unemployment or Low-Income Situations
This is the ultimate in making lemonade from lemons. Don't miss the opportunity presented by a low or negative income situation. A temporary situation such as a job loss or large farm loss (think vineyards) can be a great tax saving opportunity. For those clients who have reached age 59½, plan to take IRA distributions or make Roth conversions up to the amount that will trigger tax.

Harvest Tax Losses Throughout the Year
This is front of mind as the year winds to a close, but there is no need to wait for crunch time. By keeping track of gains and losses throughout the year, advisors can make a meaningful contribution to the client's bottom line and take advantage of market dips. This is especially important when taking on a new client that just happens to come on board at a high point in the stock market or a new client that has embedded gains in a portfolio that is in need of restructuring.

The author is a freelance contributor to MorningstarAdvisor.com. The views expressed in this article may or may not reflect the views of Morningstar.
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