What Makes WMA’s Approach Unique?
Organized by: Wealth Management Accounting (WMA)
Most tax preparers, CPAs, enrolled agents, and accountants specialize in tax compliance, management, and preparation.
They do NOT provide tax planning, optimization, and efficiency, which requires the correct tax diversity tool to be effective in wealth management. Each of these is a vital strategy in growing your wealth, often inaccessible to most.
Many tax terms appear at face value to mean the same thing. To help clear up confusion and aid in providing transparency, we have compiled a list of definitions below to clarify confusion you may have regarding the tax planning process.
Tax planning is a daily, year-round process, not a seasonal event. It differs from the regular annual tax preparation/management service, encompassing far more services than just management. Everyone can take advantage of and create wealth with a tax plan. These advantages apply to both individuals and business owners alike.
Tax planning refers to preparing a tax plan beginning January 1st of each calendar year. A tax plan enables your financial affairs to enjoy all eligible deductions, exemptions, and allowances that fall within tax law. They follow an honest approach conforming to provisions that fall within the taxation law framework using every advantage available to benefit you as the taxpayer.
Tax plans result from careful consideration of a client’s needs in addition to the consistent efforts of a dedicated team. An effective tax planning team consists of:
- An accounting firm supported by CPAs accompanied by an Enrolled Agent (EA) with proven in-depth experience and tax law knowledge to supplement and enhance Wealth Management Accounting.
- A high-quality bookkeeping department. Proper record-keeping is a necessary component of an effective tax plan. Accurate records make it significantly easier to prepare tax returns the following year. This cannot be stressed enough. It is critical to know accurate lifestyle numbers for an excellent year-round tax plan to be effective.
- A seasoned financial advisor experienced in tax-diverse, tax-efficient structures and entities that will create tax optimization for investments. These planning techniques lead our clients to savings in their tax bills, creating increased wealth.
- A clearly defined Operating Agreement reviewed by a qualified tax attorney. This agreement must be in effect to properly achieve and utilize tax diversity, efficiency, and optimization.
Tax management is the punctual and regular adherence to tax laws and other financial history arrangements with the goal of reducing taxes. This process deals with maintaining accounting records, filing returns, auditing accounts, and paying taxes in a timely manner. The ultimate objective is to adhere to tax law provisions with year-end accounting completed during the first quarter of the new year.
Managing taxes is not considered tax planning; this practice only implies good habits and discipline. Our services at WMA extend beyond simple tax management.
Simply, tax compliance ensures that all taxes are paid on time and in full. A dutiful and essential aspect of tax planning is knowing what you need and when you need it, and this can be difficult with the quick rate of change in tax law. Ensure that you stay updated with professional advice on recent changes to know you are making the most accurate decisions for your money.
Tax liability is taxation a business or an individual builds up according to state and federal tax laws during a fiscal or annual tax year. One incurs liability from earned income or an increase in earnings on selling a product or service. For example, selling $100,000 worth of goods may incur a liability of 20%, translating to $20,000 in taxes on those transactions.
A taxable event is a situation created by any event or transaction during the current tax year that results in a gain or increase of wealth. In the previous example, selling the goods is a taxable event resulting in tax liability.
Tax diversification is a core function that makes our service unique here at WMA. It is just like investors spreading risk exposure across asset classes; the same practice is valuable for taxes. Yet, many do not realize that tax diversification is just as beneficial. Diversifying tax exposure will help manage cash flow and increase wealth.
Tax Diversity Tools:
Using tax-diverse tools today is essential to saving on taxes in the future. When you consult a financial professional, they can help you figure out which tax-diverse tools or combinations of tools would be best for achieving your goals.
Please refer to the list below.
- FLLC (Family Limited Liability Corporation)
- CRT, CRUT, NIMCRUT (Charitable Remainder Trust)
- 2 Tier Entity Structure
- Non-Qualified Annuities, Split-Annuity concept
- Overfunded Life Insurance
- Business LLC
- Defined Benefit Pension Plan, Simple Pension
At its most straightforward, tax efficiency is when you minimize your tax liability. Tax efficiency occurs when an individual or business pays the least amount of taxes required by law, using diverse tax structuring to receive the least possible taxation. In other words, tax efficiency refers to structuring an investment to minimize taxation on growth.
Tax Optimization involves arranging your financial plans to take advantage of tax-efficient investment strategies and decisions. This arrangement includes consideration of the timing of income and investment purchases, types of investments, retirement plan distributions, and tax preparation using all available tax diversification tools.
There are numerous ways to optimize your taxes depending on your responses to the criteria below:
- What is your current asset protection structure?
- Do you need to create a new tax-diverse entity?
- Are you taxed as an individual or a business?
- How is the income for your family earned?
- What are your current state tax laws?
Remember: there is no silver bullet! There is no single tax optimization technique that will work for every situation. The WMA team offers several choices, strategies, and resources that will guide you through growing your wealth effectively.
Why Should You Know the Difference?
Unfortunately, confusion is all too common in the finance industry. Education and information are crucial to understanding and determining what is best for yourself and your money. A good tax plan is based on informed decision-making guided by our professional advice.
Our team uses every aspect of tax law to provide a high-quality tax plan for you. Ultimately, each concept here is for your benefit as the taxpayer. Each structure will be designed with minimizing your taxes in mind. We cut your liability by capitalizing on key strategies that are otherwise not utilized for your benefit. A wealth management tax plan will provide all the freedom and sustainability you require while simultaneously growing your wealth. While we work to ensure that tax law works to your benefit, remember that we can accommodate various circumstances to accomplish your goals. It is your money; it should be working for you.
Tax planning is one aspect of the overall financing structure that WMA offers. Specifically, it will minimize your tax liability by using tax law to your benefit. However, it is only one of four fundamental components required to successfully Create, Preserve, and Retain your wealth. We suggest that beyond only tax planning, steps be taken to ensure that asset planning, estate protection, and investment management options are also being considered. Proper execution of these four concepts in accordance with the relevant professionals will, in turn, help keep your wealth and your future secure.