The Clients

A successful married man and woman frequently complained about taxes they had to pay to the IRS. To learn if the annual tax bill could be reduced, they contacted planners at Annuity Strategic for advice.

Bob Jane
Age 43 38
Salary $120,000 p.a. $30,000 p.a.
House $800,000 with $420,000 mortgage
Shares $15,000 $0
Super $140,000 $80,000
Health Good health
Children Chloe age 7, Isabel 3 and Oliver age 10
Insurance Adequate general & personal insurance

The Process and Solution

A review of the couple’s most current tax return revealed how much taxable income was being generated from investments.

  1. The planners discovered interest that was taxed as ordinary income. They suggested investing in municipal bonds, which incur no federal tax on interest.
  2. The planners also uncovered additional taxes because capital gains were derived on an annual basis from mutual fund distribution. Applying the best use of monies concept for their investment allocation and considering the new net investment income tax, the planners suggested tax-efficient investment strategies to help minimize taxes from capital gain distributions on an ongoing basis.

The next step was to review the husband’s company benefits. His employer, a large pharmaceutical firm, paid not only his salary, but a bonus and short and long-term incentive-based compensation, as well. Annuity Strategic planners helped make sure he was maximizing his 401k plan contributions, including its catch-up provisions.

  • They reviewed his stock options, restricted stock awards, deferred compensation and performance awards. Considering their client’s anticipated retirement date, they helped coordinate the timing of when company incentive stock awards should be sold with overall income and tax objectives.
  • They discussed the possibility of taking some compensation now and deferring a portion past his retirement date. A long term plan was established which optimized value from the company incentives while minimizing taxes.

A final analysis of all itemized deductions revealed further tax-reduction possibilities. The planners noted that charitable gifts of appreciated stock could help reduce company stock exposure and may provide a tax-advantaged charitable deduction. They also were sure to deduct investment advisory, financial planning and tax preparation fees.

The Results

The planning helped to minimize the couple’s tax liability and a more tax-efficient investment strategy maximized the after-tax value from the client’s company benefits.

The Moral of the Story: Taxes, though inevitable, can be minimized.