By Alan Shevins

Having been a CPA for several decades, I’m still surprised at the number of people that I encounter forging ahead with large transactions without considering the tax implications of their actions.  Often the tax implications turn out to be of significant consequence.  Business purchases, investments, withdrawals, home purchases, debt acquisition, and other major life events are examples that may have a known or unknown price tag.  As CPAs, we are oftentimes apprised of these events after the fact.

Example 1:  Pat and Sally funded investments near the end of 2017 that provided a tax deduction with retirement distributions that exceeded their minimum required distributions.  The end result was not as optimal as it could have been had there been a discussion about timing the components of the transactions.  This can be true in years where the marginal tax brackets for two adjoining years greatly differ, or where income fluctuates or when tax laws introduce vastly different results from one year to the next.  Pat & Sally’s taxable income was much higher in 2017 putting them in a much higher tax bracket for that year compared to their anticipated 2018 lower incomes and lower tax brackets under new tax laws applied.  Had they waited a short amount of time to complete the retirement withdrawal, they would have paid much less in tax on the voluntary portion of the taxable retirement distribution in 2018. Consulting a knowledgeable tax planner could have saved on taxes.

Example 2:  Sam and Diane had gone through a divorce in 2017 before Sam became a client. While separated from his spouse and ahead of the divorce settlement, Sam started making voluntary monthly payments to his soon-to-be ex-spouse before the divorce agreement was finalized.  He deducted the payments as alimony on his individual tax return.  The IRS disallowed the deduction for the payments made before the mandate from the court ordering payments pursuant to a divorce decree was legally finalized.  The voluntary payments were not legally mandatory at the time that he made them, and thus did not qualify as alimony.  This situation could have been avoided had he consulted with a CPA to advise on the taxable ramifications of the payments along with other tax considerations before taking actions that may not be reversable.

Tax laws changed dramatically in recent years.  Checking In with your family or estate attorney and your CPA to update your strategy often pays dividends in the form of tax savings and loss avoidance.