In their 1966 hit album, Revolver, the Beatles cautioned that the “Taxman” tries to take it all. We may not sing as well as the Beatles, but if you don’t want to pay more taxes than you need to, Crestwood Advisors can help.
At Crestwood, we take a holistic view of your tax situation – past, present, and future – to help you keep more of what you earn. We’ll work with you to create a tax strategy that is personalized to you and your family, considering all personal and professional factors and any changes that may lie ahead. Taxes can take a big bite out of your earnings; your team at Crestwood will recommend strategies to help manage how large of a bite, including:
Tax-Loss Harvesting
Many individuals have heard about tax-loss harvesting – the practice of selling assets that have declined in value in order to “harvest” a capital loss. This loss can be used to offset capital gains on the sale of assets that have appreciated in value since their purchase. For example, suppose you’re preparing to sell your home before moving to a warmer climate for retirement, and you expect to make a substantial profit on the sale. If you also hold an investment that has declined in value, selling those underperforming securities can create a capital loss. You can then use this loss to help reduce the taxable gain you’ll owe on your home.
In this scenario, you might even use the proceeds from selling the underperforming investments toward your new property purchase. While some firms only pursue tax-loss harvesting at the end of the year, at Crestwood, we look for these opportunities throughout the year to help manage your tax liabilities.
Philanthropic Strategies
Your approach to charitable giving can significantly impact your taxes. While many people simply write a check, that may not be the most strategic option—for you or for the organizations you support. For example, donating appreciated securities allows charitable recipients to benefit from the higher value of your gift while protecting you from capital gains taxes. Alternatively, giving through structures such as a donor-advised funds (DAFs) can give you additional flexibility: you can take a tax deduction in a high-income year and decide later which specific causes you want to support.
Before making any recommendations on when and how much to give, we evaluate both your current and projected tax situation to identify the most beneficial approach. In some cases, consolidating your donations into a single year may be advantageous, while in others, spreading out contributions might make more sense. By tailoring your plan, we aim to maximize the impact of your gifts while aligning with your financial and philanthropic goals.
Required Minimum Distribution (RMD) Planning
The tax consequences of RMDs can take recipients by surprise, often placing them in a higher tax bracket than expected. We factor the impact of RMDs into your entire tax strategy, thinking about timing and the best way to take your distributions. Assuming you meet the eligibility requirements, you may want to use your RMD to make a Qualified Charitable Distribution (QCD). A QCD is not subject to taxation and does not count toward your maximum charitable deduction if you are itemizing your deductions. So, if you always make an annual donation to a cherished cause, a QCD can be an effective way to give.
Looking Forward to Retirement
When retirement is on the horizon, we’ll incorporate your anticipated change in income into your plan. This may mean delaying distributions from retirement accounts or executive compensation to the future, where possible, when you may be in a lower tax bracket. We’ll also help you manage your Income-Related Monthly Adjustment Amount (IRMAA) to potentially minimize the premium you pay on Medicare Parts B and D based on your Modified Adjusted Gross Income (MAGI). We will also explore your current retirement accounts and whether a Roth conversion might be beneficial.
We may also recommend a Roth conversion in which part or all of a traditional IRA or 401(k) is converted to a Roth IRA. Although the amount you convert is taxed as ordinary income in the conversion year, future account growth and distributions are free from Federal taxes.
Contact Crestwood
At Crestwood, we are committed to helping you achieve your financial goals. We encourage you to reach out to let us know about life changes you foresee or when they happen, so that we can adjust your tax strategy and address your evolving needs. We stand ready to work with your outside accounting, legal, and other experts to coordinate your strategy and help ensure that you get integrated advice and guidance to help grow and preserve your wealth.
If you have any questions about tax optimization, please reach out to your advisory team. And if you are not yet working with Crestwood, please contact us to start a conversation.
This document is provided for general informational purposes only by Crestwood Advisors, an investment adviser. Crestwood Advisors does not provide legal advice, and this document should not be construed as containing legal advice. For legal advice, consult with a licensed attorney. This document should not be construed as containing tax advice. For tax advice, consult with your tax adviser.
