Judge Learned Hand gave tax planning a thumbs up when he wrote: “Anyone may so arrange his affairs that his taxes shall be as low as possible; he is not bound to choose that pattern which will best pay the Treasury; there is not even a patriotic duty to increase one’s taxes.” [Court of Appeals, 2nd Circuit, Commissioner of Internal Revenue, v. Evelyn F. Gregory, (Mar. 19, 1934)] (Emphasis added) I provided a link to the case for those who are gluttons for punishment.
The key is in forethought and planning. Once the transaction is complete it may be too late. After the fact, it is very difficult and often impossible to “arrange” the transaction to reduce the income taxes. Calling after you have completed the deal is like shutting the barn door after the horse has run away. Call before you make the deal, sell the property, exercise the option, etc. Perhaps nothing can be done within the parameters you define but at least you won’t have to say “if only I had ….”
When should you call your tax professional?
- Before you sign a contract to buy or sell real estate
- Before you retire
- Before you take a withdrawal from an IRA, a Roth IRA, and a Coverdell Savings account
- Before you take a withdrawal from a 401(k), pension plan or annuity
- Before your child starts college or other post-secondary education
- Before you set-up college savings accounts for your children
- Before you start a business
- Before you start doing business internationally
- Before you sell a business
- Before making gifts totaling more than $15,000 in one calendar year to one person
- Before setting up a trust or terminating a trust
- Before you begin investing, if you are new to investing
- Before exercising employer stock options
- Immediately upon receiving a notice from a tax authority or being contacted regarding an audit
- Immediately upon becoming an executor for an estate
When tax planning you should remember the old saying: “Pigs get fatter but hogs get slaughtered.”