Take Charge of Your Taxes - Copy 1

Apr 2, 2014 | By: Michael Blanchard

Now is the time to plan for 2014 taxes and beyond.

April 04, 2014

Plan ahead for tax benefits:

"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." 

When Judge Billings Learned Hand wrote these words in 1935, the 16th amendment to our Constitution was barely 20 years old. But even then, the income tax system it authorized was complex and frequently changed due to political pressure in Congress and creative interpretations by the courts. Well, at least some things don't change!  Each year, our firm prepares hundreds of tax returns for people wishing to pay no more tax than they are legally obligated to pay. Unfortunately, when we prepare these returns we often realize that a taxpayer might have paid substantially less tax by making a few changes before the fact.  


Gifting is actually one of the more common areas where an ounce of planning will save a pound of tax, and other non-tax troubles, as well. We often see parents and their adult children putting all financial accounts in joint tenancy, or transferring title on real estate because they want to "avoid probate". This may be useful in some situations, but in general we find it can actually complicate matters after death and can result in more tax, not less.

In one situation, an attorney asked me to help his client understand the tax impacts of a proposed gift. An elderly gentleman wanted to transfer ownership of a farm property to his son. His son indicated that he would likely sell the property, but only after his father passed away. When they learned that the planned gift would actually increase their tax liability substantially, they decided to work with the attorney to establish a trust that was better suited to their goals.

Mortgage Increases?

Maintaining or even increasing the amount of a mortgage on a residence to "keep the tax deduction" is a decision that can be counterproductive. A retired couple might own a home for many years, and have a mortgage balance that is $50,000-$75,000, and financial accounts that are conservatively invested. Working with their financial advisor, we will often find that it could save them a few thousand dollars a year to pay off the mortgage now - without impacting their income tax at all.

Kids Headed to College?

Families with kids heading off to college face an incredibly complex set of rules surrounding dependency exemptions, credits and deductions for tuition. Just filing returns can be a chore, as college students will work a part-time job and often file their return before their parents file. This leads to notices from the IRS and amended returns to remedy the situation. A good plan would involve not only analysis of finances, but will include discussions about coordination of filing that will help students learn a valuable lesson in responsibility.

Talking with a tax professional before financial transactions happen is just as important as filling out the forms correctly at the end of the year. Once we understand your goals and available resources, we can work with you and your other advisors to, as Judge Hand recommends, "arrange your affairs" appropriately.

Call to talk with one of our local experts at 503.390.7880.

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