"I am proud to be an American. Although I can be just as proud if I paid half as much in taxes."
--Arthur Godfrey

Steve Margulin, who, in addition to being a financial advisor, is also a CPA with over twenty years of tax preparation experience, says, “I don’t want income taxes to be the tail wagging the dog, but there are certainly ways to structure your transactions to take advantage of the tax laws.” Having your portfolio and your plan for income being tax-smart makes good sense (and dollars). However, Steve’s overall philosophy is that it does not make sense to spend $100 for a deduction to get back $33 in a refund. So, focusing on minimizing taxes is not the goal. He focuses on maximizing your after-tax cash flow—what you have left after paying taxes.

Many other advisors don’t have a focus on after-tax cash flow. As an example, one client’s former investment advisor generated 228% more taxable income in the portfolio and trading activity compared to a portfolio and activity created by Steve.

That said, here are some of the ways that having the same firm take care of your financial planning and investing AND your taxes can be beneficial:

When making changes in your investment portfolio, Steve is aware of your tax basis (the cost of the purchase plus the expense of buying, holding, and selling it), so he factors in the income tax consequences of any changes.

Capital gains (the profit you make when you sell a security or other investment) are taxable. If you hold an asset for less than a year, any increase in its value is called a short-term gain, and it is taxed at your regular tax rate. If, however, you hold the asset for more than a year, and, then, you sell it at a profit, it is taxed as a long-term capital gain, which is taxed at a lower rate according to current tax laws.

Steve looks at the ever-changing tax environment to structure clients’ transactions. For example, during one year, he’ll work with a client to harvest tax losses by selling to recognize the short-term and long-term capital losses. Then, when the market dictates, he can capture capital gains by selling winners and utilizing the prior carry-over losses to lower taxes. (You can combine capital gains and capital losses—short-term gains with short-term losses and long-term gains with long-term losses—in order to offset or lower your taxable gains.) There is a cap of $3,000 of losses that you can take in any given year, but you can carry over any extra loss to following years and deduct it then.

Steve meets with clients during the year to review a projection of what their tax return might show. He sees if there is anything that should be done to minimize taxes, while being mindful of his focus to maximize after-tax cash flow.

Then, during the tax return preparation appointment, Steve will ask questions related to clients’ futures, not just questions related to the past year. For example, he might ask what they want to be able to contribute towards their children’s college education, keeping in mind that it is important to begin to save early. It’s easy for Steve to see situations like this as he is preparing his clients’ tax returns. He can, thus, be more proactive with suggestions and advice.

For clients wishful of financial security in retirement, Steve can provide advice about which retirement savings vehicles to employ. There are a variety of tax-deferred investments from which to choose, including 401(k)s, IRAs, Roth IRAs, SIMPLE IRAs, and SEP IRAs. There are contribution limits on the amount you can put into one of the tax-deferred plans each year, depending on the type of investment. And, often the amount you invest is actually tax deductible, which can be an excellent use of your money.

One of the considerations with Roth IRAs is that they provide a greater after-tax return than do non-deductible IRAs or taxable accounts. With a Roth, the money you take out is completely tax-free, as long as you follow the rules for withdrawal.

When deciding on the optimum savings vehicles for a particular client, Steve takes into account the age they intend to retire and how much income they will need. He also keeps in mind such factors as minimum distribution requirements and premature withdrawal penalties.

These are just some of the ways that Steve Margulin provides value-added service to his clients. Since clients stay with him year after year, he gets to know them and their needs and dreams for the future. Then, when he discovers some new strategy, either for investment planning or for tax planning, clients will come to mind for whom the strategy would be effective. His mind is always at work, thinking of what he can do to improve the odds for his clients’ future financial success.