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Why We Do Tax Projections at PYCT

Are your taxes being filed reactively – or worse – retroactively? Each year that goes by is an opportunity to plan or an opportunity that was missed. Most tax filers begin each new year preparing their previous year‘s tax documents and getting their tax returns filed with the IRS by April 15th. Some choose to extend and file by October. However, all of the work is being done retroactively or reactively without the proactive planning that should be done to uncover opportunities and associated future risks. Here are a few reasons why we do tax projections at PYCT (Planning You Can Trust). 

You could miss opportunities.

Our office has seen countless tax filers that neglected to run the idea of selling a property to their advisor before the transaction closes, or households that have sold highly-appreciated stock in a year that income is already high. 

Many investors choose to buy and sell stock throughout the year and cause capital gains that don’t actually represent a portfolio gain, but rather a taxable gain. 

Some investors have mutual funds that have high turnovers and distribute gains to the shareholders causing unforeseen taxes for the year. Imagine an investor purchasing a mutual fund that owns 100 shares of XYZ stock. The investor has only owned the mutual fund shares recently, but the fund has owned XYZ stock for the last 3 years and is selling off a large portion. The fund will then distribute whatever gain is realized to the shareholders of the mutual fund as a capital gain distribution. This is a taxable event for the investor even though the investor may not have gained much at all from the XYZ stock themselves. 

You need to ask the right questions.

A well-thought-out tax plan is a plan in which projections are done years in advance, then followed up year by year. Is your advisor not asking the right questions? Are you?

  • Why not discuss the possibility of selling a home before it is sold? 
  • What happens in years when medical bills are higher than normal? 
  • What happens in a year of low income versus a year of higher income?

If you are looking to retire soon, isn’t it important to plan out your early years of retirement since your income may be changing dramatically? Salaries and bonuses will be replaced with social security, pensions, 401K, investments, etc. 

Monitoring cash flow could give answers.

Long term tax planning is virtually impossible to do without structuring and monitoring future cash flows. Cash flow tells us how much money each household has coming in vs. going out over a given time period.  Cash flow analysis could in turn allow us to discover the most tax-efficient way of withdrawing funds for a household. 

Investment companies and professionals focus a lot of their efforts on controlling risk by diversifying their asset allocation. However, very few actually focus on Tax-Efficient Asset Location. Tax-Efficient Asset Location focuses on where certain types of assets (ordinary income investments versus cap gains, or tax-free investments) are better held for a specific client account (Taxable v. Tax-Deferred v. Roth).

Let us help you with tax projections at PYCT.

These are the back-and-forth discussions that our professionals have with each other in lieu of our clients. When we do tax projections at PYCT, we have the chance to discover problems or opportunities before it is too late. Contact us today so that we can help you form a proactive tax plan.


Eric Oh, CFP®, ChFC®

Check the background of this firm/advisor on FINRA’s BrokerCheck.