Proactive Year-Round Tax Planning Optimizes Wealth Accumulation

Key Quotes

"tax advice is financial advice i want to unpack that how should investors be thinking about the role of tax planning in their overall wealth strategy especially here in december well thanks barry for having me let's just think about a financial plan for a second what part of a financial plan does not touch on taxes i mean think about just basic cash flow planning taxes for our investors are often the largest expense in their annual budget it's mortgage and taxes those are the largest costs life insurance is thinking about a tax free inheritance for the next generation or for your heirs estate planning is all about taxes if there was no estate tax we wouldn't really have to think about estate planning and then basic portfolio management is uh is purely you know not purely tax centric but our investors are thinking about tax all the time our clients would rather save a thousand dollars on taxes than make six figures in a trading day uh so it's all connected and the end of the year is like the report card uh tax planning should be happening proactively for 12 months but we don't even stop there we're not thinking about taxes as a current year item or even a lifetime item we're thinking about this generationally we're thinking about how can we set up the next generation of client children client grandchildren for tax success"

Bill Artzerounian argues that tax planning is an integral part of any financial strategy, touching upon cash flow, inheritance, estate planning, and portfolio management. He emphasizes that taxes are often the largest annual expense for investors, underscoring the importance of proactive, year-round tax planning rather than a last-minute approach. Artzerounian also highlights a generational perspective, focusing on setting up future generations for tax success.

"i think one of the misunderstandings is on tax deferral rather than tax avoidance uh many strategies can avoid tax or can defer taxes but that bill will come due at some point you know think about even just a 401k pre tax contribution you're going to recognize that income at some point things like accelerated depreciation will come back to bite you on the recapture when you sell the asset opportunity zones are a tax deferral mechanism these are all very useful because time value of money says that a tax deduction today uh is worth more than a tax deduction in the future uh but eventually that there's going to be a tax hit so i think that's a common misunderstanding"

Bill Artzerounian points out a common misconception between tax deferral and tax avoidance, explaining that deferred taxes will eventually be due. He uses examples like 401(k) pre-tax contributions and accelerated depreciation to illustrate how these strategies, while useful due to the time value of money, ultimately result in a future tax liability. Artzerounian clarifies that understanding this distinction is crucial for effective financial planning.

"number two is on the equity comp side uh equity compensation for folks compensated through their company stock the timing of the income can often be flexible think about stock options company stock options we should be asking the question how much can we recognize in stock option income before the end of the year before we bump up against the next federal or state tax bracket how much if these are incentive stock options how much can we recognize without paying amt alternative minimum tax these are questions we should all be asking if we have if we're paid through equity or if we have clients that are paid through equity"

Bill Artzerounian advises individuals compensated with company stock to consider the timing of their income recognition. He suggests evaluating how much stock option income can be recognized before year-end to avoid higher federal or state tax brackets or the Alternative Minimum Tax (AMT). Artzerounian stresses that these are critical questions for those receiving equity compensation.

"the last one is for small business owners there's there's a whole lot on the small business side of of this i'm focused a lot on qualified business income which is a 20 deduction for pass through income but there are limitations and those limitations can be on based on how much you pay your employees or yourself in a wage if you don't meet a certain wage number that qbi benefit could be significantly reduced or even reduced down to zero if you're if you're really screwing this up and then on the small business side we should be looking at are we prepared to maximize retirement contributions the max 401k is is 70 000 this year between employer and employee contributions and so you have to be ready to have that cash available to fund those contributions"

Bill Artzerounian highlights key considerations for small business owners, particularly regarding the Qualified Business Income (QBI) deduction. He explains that QBI benefits can be significantly reduced or eliminated if wage thresholds for employees or owners are not met. Artzerounian also emphasizes the importance of preparing to maximize retirement contributions, such as the $70,000 401(k) limit, by ensuring sufficient cash is available.

"i love tax advantaged love hsas you need to be you need to be on a high deductible plan which isn't for everybody my colleague bill sweet and i we ran an analysis on high deductible plans and we found that there's a pretty there's a pretty attractive break even on high deductible plans because the premiums are lower and the long term benefit of investing deducting hsa contributions and treating those as another retirement vehicle again those are like roths where they're tax free those those can compound very very nicely where maybe you retire early and let's say you retire at 60 instead of 65 you have a five year gap where you need to cover probably significant healthcare premiums that hsa can be used in that case and it's a nice tax free bucket to have"

Bill Artzerounian expresses strong support for Health Savings Accounts (HSAs), noting their tax-advantaged nature and potential as a retirement vehicle. He mentions that HSAs require enrollment in a high-deductible health plan, but an analysis showed an attractive break-even point due to lower premiums and long-term benefits. Artzerounian explains that HSA contributions are deductible, grow tax-free, and can be particularly useful for covering healthcare costs during early retirement.

"i think the the term thoughtful there implies to me that there should be an ongoing activity not just a year end item historically taxpayers sell diy investors and even advisors they'd look at the portfolio in december they'd say okay what's underwater let's book those losses through through direct indexing this is now an ongoing activity but you don't need a direct indexing portfolio to look at your portfolio you can even if even if you're not in a direct indexing setup you can still tax loss harvest throughout the year why just december this should happen with regularity there's nothing saying we can only book losses in december now a lot of this is dictated by individual stock market volatility but with a with an ultra diversified bucket of stocks some will ultimately be losers so you sell those you pick up tax losses you invest in a similar company so you keep the fidelity of the portfolio and then you don't trigger wash sale rules"

Bill Artzerounian clarifies that "thoughtful" tax-loss harvesting should be an ongoing activity