I shifted my tax planning practice from a focus on contractors to a focus on attorneys after the societal realignment that followed the presidential election of 2016. It quickly became clear that the range of tools and techniques would be quite different for my new small professional firm clients. Some of the accounting and planning techniques that are useful to contractors are simply not useful or popular with lawyers, and vice versa. In response, I began compiling a new checklist of possible strategies that was better-suited to attorneys in small practices.
Tax planning typically begins with an analysis of the taxes actually being paid now, then moves to a pro-forma calculation of taxes with projected financial results and the best available information. Then some type of brainstorming is used to identify possibilities to reduce the specifically targeted tax that is anticipated in the pro-forma. That’s where a checklist is helpful. At that point it is easy to doe a “what if” calculation to identify potential savings. This checklist list is not meant to be exhaustive but rather provides a starting point for discussion of tax and financial planning possibilities. I expect to add to my checklist or modify it over time.
- Available tax credits
- Health Reimbursement Arrangement
- Qualified Small Employer Health Reimbursement Arrangement
- Health Savings Account
- Education Assistance plan
- Accountable reimbursement plans
- Special partnership and limited partner allocations
- Non-taxable reimbursements
- Timing of trust fund disbursements
- Split dollar cash value life insurance
- Deferred compensation plan
- Segregation of non-professional income
- Employee vs contractor allocation
- Employer-provided IRAs
- Profit sharing plan
- Pension Plan
- Employment of family memebers
- Family limited partnerships
- Qualified Small Business stock
- Gifting of income-producing assets to family members
- Donating appreciated stocks to charity
- Family trusts
- Charitable lead trusts
- Charitable remainder trusts
- Sale and lease back arrangements
- Combining passive losses with passive income
- Oil and gas investments
- Registered tax shelter
- Conservation easements
- Eliminate AMT sources
- Delay social security by using other taxable sources of income first
A simple approach is to briefly consider whether each of the strategies might be available and appropriate, then list a short advantage and disadvantage of each. Based on these preliminary analysis, it is then possible to begin ranking the possibilities in terms of their cost/benefit and the net impact on tax savings and overall financial planning. The illustration above identifies these results as “WHAT YOU SHOULD FOCUS ON”.
The only way to prepare a useful tax strategy forecast of results is to actually prepare a pro-forma tax return calculation using the best available information at the time of the analysis. We know that anyone who chooses to focus on a goal of reducing taxes will ultimately be successful in achieving savings.
I am pleased to arrange a discussion of tax planning with a small practice professional who might be interested in how to safely reduce their tax burden.