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Tax Secrets Most Financial Advisors Forget to Tell Their Clients

Tax PlanningIf your clients are investing for retirement income, it pays to focus on tax savings to get them there quickly. Your clients can take the money they would have given to Uncle Sam and grow their wealth instead!

Here are two tax planning secrets most financial advisors forget to tell their clients:

Tax Planning Secret #1: Let the government help pay for a child’s college education

If your client owns a business, they could hire their children to perform routine tasks such as filing, scanning documents, and emptying the trash. If your client paid each child $5,000 annually, they could invest the $5,000 into a Roth IRA for each child every year until they attend college. This would accomplish three important things:

1. Uncle Sam would help pay for their children’s education.
2. Your client’s business would save up to $4,000 annually in income taxes (39.6 percent of the $10,000 of two children’s salary), and it would cost them only $1,500 in payroll taxes (15 percent FICA tax). If they hire their kids to work in a sole proprietorship, and they are minors, they may even save the FICA! The children would owe zero income taxes, a win-win situation.
3. Roth IRAs grow tax-free and are not taxable as long as the funds are utilized for college expenses.

Tax Planning Secret #2: Deduct 100 percent of your client’s medical expenses

If your client’s business is a C Corporation, they could set up a Medical Reimbursement Plan or MERP. The MEPR allows the corporation to deduct 100 percent of family health insurance and medical costs.

If your client paid their medical expenses from their personal checking account, their high-adjusted gross income would prevent them from deducting any medical costs on their individual return. However, the MERP would allow them to deduct health insurance as well as prescriptions and doctor visit co-pays. If your client’s medical expenses totaled approximately $10,000 per year, they could save approximately $1,500 per year.

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