Don’t Let the Tax Tail Wag the Dog
As we move into tax season and a new tax law goes into effect, a saying springs to mind that we at Wealth Impact Partners have repeated frequently over the years: “Don’t let the tax tail wag the dog.”
What Does That Mean Exactly, and Why Is It Applicable?
It means a lot of people implement certain financial or tax strategies, like making some type of irrevocable gift or even sometimes refusing to sell an investment that has become risky, simply because they don’t want to incur a tax. They do this without considering some of the real-life implications of those strategies—like how it might change the touch and feel of their money, or the control of their assets, or their ability to do something freely that they want to do.
That’s not always the best idea. Sure, there are certain scenarios where taking specific actions can benefit you financially and provide the side benefit of tax savings. But that shouldn’t be the driving factor. There are more important things going on with your money. The tail shouldn’t be wagging the dog. The dog (your overall financial plan) should be wagging the tail.
It’s not about just money. It’s about more than money. When you only focus or laser-in on tax strategy, it often seems to become a little too much just about money. At Wealth Impact, when we talk about tax strategy, we try to put it in context—which is ultimately what we try to do through the planning process. How does it connect to the larger whole?
How the New Tax Law Changes the Rules of the Game
Of course, the new tax reform law is making things a little more complicated and raising a lot of new questions. There are all kinds of implications. For some of us, our taxes are about to increase. For others, we’re told our taxes are going to decrease.
Even though the law is allegedly supposed to make our taxes simpler, it’s also changed the rules of the game sufficiently enough that many of us may unwittingly step into a pitfall or a minefield and get harmed by it. So we need to understand with the help of a professional how the law impacts us.
You need a professional who both understands the new tax law AND can help you plan within that context. Those are two different things by the way:
- CPAs, in my experience, are usually more of reporters than planners. This is the result of their training, education, and focus—which is on compliance and reporting, rather than planning (at least for some CPAs). Their business model and the client expectations are such that this kind of additional scope of professional relationship with regard to broader planning is just not realistic.
- Financial Planners are more likely to be proactive. But all financial advisors, financial professionals, wealth managers, and/or financial planners are not created equally. Be sure to be sensitive to this. Find someone who is not only highly competent and has a longstanding record of outstanding character, but also someone who you personally feel is a good fit and who you could envision working with long term.
This tax law is important to understand because if you don’t, you’re at risk, and if you do, there could be significant opportunities for you. Essentially, there are risks in not knowing and there are opportunities in knowing.
But don’t just respond in some tactical, flying-blind kind of way—which for many people is the default method. Do it in the context of a comprehensive plan, so you can also understand the non-tax considerations various strategies could have on your overall financial plan. These might include cash-flow, loss of control, other risks that may need to be managed, family dynamics, and more.
Again, don’t let the tax tail wag the dog, It’s about more than money. It’s about what matters to you. If you can gain the kind of bigger picture understanding we’re describing here, one or more income or transfer tax strategies could be of substantial value to your family or business as you seek to increase the impact of your life and your financial success. If you have some really important and specific goals for your life and legacy, those tax strategies can be better evaluated and may ultimately be exciting ideas that just might compel you to take action.
The material contained herein is for informational purposes only and is not intended to provide specific advice or recommendations for any individual nor does it take into account the particular investment objectives, financial situation or needs of individual investors. Any tax advice contained herein is of a general nature and is not intended for public dissemination. Further, you should seek specific tax advice from your tax professional before pursuing any idea contemplated herein. This advice is being provided solely as an incidental service to our business as insurance professionals and investment advisors.
Neither Wealth Impact Partners, Valmark Securities nor its affiliates and/or its employees/agents/registered representatives offer legal or tax advice. Please seek independent advice, specific to your situation, from a qualified legal/tax professional.
Securities offered through Valmark Securities, Inc. Member FINRA/SIPC. Investment advisory services offered through Valmark Advisers, Inc., a SEC Registered Investment Advisor. 130 Springside Drive, Suite 300 Akron, Ohio 44333. (800) 765-5201. Wealth Impact Partners is a separate entity from Valmark Securities, Inc. and Valmark Advisers, Inc. BSW Inner Circle and AES Nation LLC are separate entities from Valmark Securities and Valmark Advisors.