Tax Planning Strategies & the Benefits of Working with a Financial Advisor

Aaron Szager, CFP®

Feb 19, 2021

Tax Planning Strategies & the Benefits of Working with a Financial Advisor image

As a Bay Area resident, there’s little question your tax situation is complex. With varying income sources, life-changing equity events, or business acquisitions, you may be dealing with complicated tax situations that call for an added degree of sensitivity and attention because missteps can be costly. There could be taxable revenue streams hiding in the intricacies of your specific tax bracket that you need to take into account to avoid penalties. On the other hand, there could be new tax benefits you didn’t know existed.

Tax preparation should go beyond the year-end filing; it requires strategic planning. Preparation involves formulating a blueprint at the beginning of the year and looking at your set of circumstances holistically. You have to take into account the full timeline, consider your individual financial makeup, and have an understanding of how the changing political climate might affect federal and state tax regulations and your own tax exposure. It’s not a simple task and borders on expert-only territory. It’s why so many individuals in the San Francisco Bay Area work with a skilled wealth management advisor.

Common tax optimization strategies can include anything from increasing your charitable giving to adjusting your real estate strategy, or contributing more to your 401k. Regardless, each person’s individual situation has to be taken into account. Summitry’s wealth management advisors demystify the tax return and do so at a personal level. They look at a number of variables to ensure you’re taking advantage of every tax opportunity, while also avoiding harsh penalties.

Here’s what we’re looking for and what you should too:

Looking Forward

Tax-filing is, indeed, a once-a-year event. Whether it’s you or your CPA, most tend to look at the past year—looking back on your annual earnings and your tax contributions. But in order to get a handle on tax-planning, you have to look at your past and to your future. Our advisors adopt a forward-looking approach to taxes. We take into consideration current events, political changes, and economic shifts. For example, how will a change in local, state, or federal government tax regulations impact your tax bracket or allowable deductions this year and into the future?

You need a fully-formed tax optimization strategy. You need all the information available about the past and reasonable expectations of the future to help you make decisions about your taxes today.

Looking at the Individual

Tax-planning is not one-size-fits-all, especially for those with complicated employer stock exposures so common for Bay Area residents. Each individual requires a different kind of planning—your financial story is unique! Effective tax-optimization strategies only work if every aspect of the individual is taken into account.

Ordinary income is the starting point. For some, professional compensation comes in the form of equity such as restricted stock units (RSUs), incentive stock options, non-qualified stock options, ESPP shares or large bonuses. Opportunities may exist to fund a pension or accelerate savings in a 401k, or perhaps pursue a backdoor Roth.

If you have recently experienced a large shift in your personal earnings or have benefitted from a windfall such as a liquidity event with your employer, there will be tax ramifications now and potentially in the future. There are a number of individual variables, and with each income stream comes a different tax situation to consider.

You’re also likely dealing with taxes related to real estate. As a Bay Area resident, you have unique property tax scenarios that have to be accounted for when planning for the future, particularly in the event that state and local tax (“SALT”) deduction rules change under a new administration. Understanding your individual tax situation can show you what you’re missing out on and what benefits can be harnessed through the ownership of property.

Looking Out for Risks 

The tax system is complex and keeping up with it can be a challenge. Because of these complexities, along with personal income fluctuations, it’s common to find inconsistencies and misunderstandings in tax-filing. Unfortunately, these simple nuances of a complicated system can lead to penalties and interest. If you’re self-employed, for example, you can be penalized for failing to file the proper estimated tax.

Grossly under-withholding is common if you don’t have the full scope of your earnings. It can be risky and there are costly penalties for mistakes, no matter how small. Having someone take the reins of your tax-planning—someone who is deep in the details of and cognizant of the current climate—helps you avoid severe penalties and ultimately provide you with peace of mind.

Unique Tax Planning Considerations & Strategies  from Summitry

Developing a tax strategy—understanding the nuances of your situation as a Bay Area resident and making decisions based on those nuances—is challenging and time-consuming. A wealth management advisor can ensure that you’re taking advantage of opportunities built into the tax regulations and avoiding harsh penalties.

Summitry demystifies the tax return and specifically finds avenues to understand and manage the unique taxes experienced by Californians. Some of our approaches include taking a custom look at:

  • Equity Compensation: Depending on the type of equity you receive, you may be subject to any number of unique tax implications which come along with equity compensation. For example, many of our clients receive a significant portion of their annual income in the form of restricted stock units (RSUs). Click here to see how we helped one client avoid a year-end tax surprise. Knowing how and when to manage equity compensation to receive the maximum tax benefits is paramount.
  • Charitable Giving: Charitable giving is a cornerstone for Summitry, as it is with many of our clients. But giving to organizations that align with your personal values is only the first step. Understanding how to maximize gifting strategies can result in major tax deductions and can ensure that your charitable dollars reach further. For example, we recently put a strategy in place for a client to minimize their capital gains liability while fueling their charitable contributions. Click here to learn more about that success story.
  • Employee Benefits with Concentrated Stock Positions: Avoiding tax liability on big gains is an important focus. There’s no universal tax strategy that is suited to all circumstances, meaning each must be specifically tailored to you and your unique situation.
  • Real Estate: There are many different real estate taxes to be mindful of while owning, purchasing, and selling property in California or elsewhere. Property taxes are just the start. A Summitry financial advisor will evaluate your real estate assets within the context of your overall personal balance sheet and can provide insight into tax implications of real estate decisions you are considering.

Summitry’s tax planning services look at the big picture. We offer tax planning that is integrated with estate planning and equity planning, taking into account concentrated stock options and real estate transactions. We run your previous year’s tax returns through sophisticated tax planning software to identify gaps and opportunities for savings. Then your advisory team carefully analyzes these opportunities and offers a forward-looking tax strategy keeping in mind your personal goals and external economic situations. It’s this type of holistic and individualized financial planning that gives you financial peace of mind.

Interested in talking about tax planning? Contact us today!



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Alex Katz

Chief Growth Officer