Tuesdays with Morey - Tax Tips Blog
The Importance of Tax Planning
Episode 2 - Listen to the Episode
This should be no big surprise that again we are discussing the importance of tax planning. All of our clients are already planning, not only for next years’ taxes, but even farther into the future. This is essential because with the ever-changing tax laws you could be left out to dry thinking in terms of yesterday. For example, the new $305 billion Highway Bill that President Obama signed into law has some pertinent, non-highway related laws attached. You might be surprised to know that many tax return dates were changed in this new bill. Who wouldn’t be surprised considering it’s called the Highway Bill? This is very similar to new tax laws introduced in the Affordable Health Care Act that can potentially create a 3.8% tax on the sale of your home.
Hopefully you are starting to appreciate the value of planning more. When we create a plan for you we don’t tell you what to do. Rather, we take your ideas and ask you the right questions to give you the best options on how to move forward. What works for John Doe might not work for Jane. The goal is to correct past mistakes and plan for the future. One significant step is to review your old tax returns to make sure there are no deductions, etc. you missed to lower any tax debt. You might even get an unexpected refund. Another key step is to take full advantage of the Offshore Voluntary Disclosure Program before it is gone and report any undisclosed income from offshore accounts. The consequences of not reporting could mean civil penalties of $10,000 or even criminal charges. These costs far outweigh those of the service costs for planning. Other governments are getting smarter in regards to this now and are starting to follow in each other’s footsteps. One example is that Mexico currently requires their citizens to file an FBAR when applicable.
Once you have the peace of mind of compliance with the IRS, the world is your oyster. But before you go running off to that exotic beach or snowy mountain peak make sure you take care of your planning in the U.S. first. All too often we see someone spend a lot of money setting up a foreign trust to move money offshore. They quickly come to regret it because they are not in the position they envisioned. One much simpler option could be a Family Limited Partnership. It’s all part of the planning process, as is planning where to keep your primary residence. If that is in the U.S. then you might want to consider moving to a state with lower taxes like Texas, Nevada, or Florida rather than states with much higher taxes like California or New York. Be sure to fully extract yourself from any previous residence because having even a small bank account can make you a resident requiring you to pay their taxes. Always remember that this issue and any others can be prevented with proper planning.
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