Estate Planning: Tax Planning

Tax planning is a year-round process, not just something that happens in the weeks leading up to April 15th. Nonetheless, it’s a wise decision to keep your tax planning process efficient,  remain up-to-date on current potential tax scams, and plan any charitable distributions accordingly.

Before we dive in, a quick reminder and something to keep in mind as you read this article: this article contains general advice and is not a substitute for individualized wealth management. For advice that is tailored to your financial needs, please make sure to consult your own chosen tax, legal, and accounting professionals. 

What’s a pre-tax investment?

Traditional IRAs and 401(k)s are examples of pre-tax investments. (Pre-tax investments are also called tax-deferred investments, as the invested assets can benefit from tax-deferred growth.)  You defer paying taxes on the contributions you make to these accounts until you start to take distributions. When you take distributions from these accounts, you will owe taxes at the time of withdrawal. 

Do you have a 401(k) or a traditional IRA? If so, you will probably be receiving income from both of these accounts after age 72.  This alone could elevate your marginal tax bracket when you retire. If you have saved and invested in addition to these accounts, the likelihood is even higher for you to be taxed at a higher marginal rate when you retire.

Under most circumstances, the SECURE Act states that once you reach age 72, you must begin taking required minimum distributions from traditional IRAs, 401(k)s, and other defined contribution plans. Withdrawals are taxed as ordinary income and, if taken before age 59½, may be subject to a 10% federal income tax penalty. Contributions to a traditional IRA may be fully or partially tax deductible, depending on your adjusted gross income.

What’s an after-tax investment?

A Roth IRA is a classic example of an after-tax investment. Funds contributed to a Roth IRA are made with after-tax dollars. As a trade-off, you may not owe taxes on the withdrawals from a Roth IRA (as long as you have had your Roth IRA for at least five years and you are at least 59½ years old). Distributions from a Roth IRA typically do not impact your taxable retirement income.

Should you have both a Traditional IRA and a Roth IRA?

It may seem redundant, but it could help you manage your tax situation. Keep in mind that tax-free and penalty-free withdrawals from a Roth IRA can also be taken under certain other circumstances, such as the owner’s death.

Making a charitable contribution

Why sell your shares when you can gift them? If you have stocks in your portfolio that have appreciated in value, you might consider donating those shares to charity rather than selling them.

Donating shares to a tax-exempt charity may allow you to both manage your taxes and benefit the charity. If you have held the stock for more than a year, you may be able to deduct the fair market value of the stock from your taxes in the year that you donate. If the charity is tax-exempt, it may not face capital gains tax on the stock if it sells it in the future.1

If you sell shares of appreciated stock from a taxable account and subsequently donate the proceeds from the sale to charity, you may face capital gains tax on any potential gain you realize, which effectively trims the tax benefit of cash donation.

When is donating cash a choice to consider?

If you donate shares of depreciated stock from a taxable account to a charity, you can only deduct their current value, not the value they had when you originally bought them. In this scenario, donating cash may be a better option. 

Remember the tax rules for charitable donations.

If you donate appreciated stock to a charity, you may want to review IRS Publication 526, Charitable Contributions. Double-check to see that the charity has non-profit status under federal tax law and be sure to record the deduction on a Schedule A that you attach to your 1040.

If your contribution totals $250 or more, the donation(s) must be recorded; that is, the charity needs to give you a written statement describing the donation and its value and whether it is providing you with goods or services in exchange for it. A bank record or even payroll deduction record can also denote the contribution.

Gifting cash or securities to an organization is a wonderful opportunity. But keep in mind that tax rules are constantly being adjusted, and there’s a possibility that the current rules may change. This is a an opportunity for you to consult your chosen tax, legal, and accounting professionals before starting a new gifting strategy if you intend to use the gift as a tax deduction.

Avoiding tax scams

The rest of this article addresses actions you can take to minimize your taxable income. This section will address actions that you may need to defend yourself from.

Year after year, new tax scams emerge that tax payers may need to defend themselves from. These offenses unfortunately occur year-round, not just during tax season. In response to the rapid evolution of these scams, the IRS has created a list of the six most common ones you may encounter.


If you get an unsolicited email claiming to be from the IRS, it is a scam. The IRS will never reach out via email, regardless of the situation. If such an email lands in your inbox, forward it to As an aside, you should generally be cautious about sending personal information, including payroll or other financial information, via email or submitting it on a website.

Phone scams

Every year, scammers will call taxpayers alleging that they owe money to the IRS. Visual tricks can lend authenticity to the ruse. For example, the caller ID may show a toll-free number. The caller may mention a phony IRS employee badge number. New spins are constantly emerging, including threats of arrest and even deportation. If you receive such a call, you should not provide any information and immediately block the number. 

Identity theft

The IRS warns that identity theft is a constant concern—and not just online. Thieves will go through a lot of effort to collect your personal identifiable information (PII) to use for their own personal gain. Some may go so far as to “dumpster dive” through your trash for PII that you may have discarded. While the IRS has made headway in identifying such scams, the best defense is to be cautious with your identity and information, both physically and digitally.

Return preparer fraud

Hidden among many honest professionals, are inevitably  a few unscrupulous accountants and tax preparers. So be careful when selecting who prepares your tax returns. Do thorough research and read previous client feedback before establishing a new professional relationship and exchanging sensitive personal information. [ is there some official review website, like the carfax of accountants that you can insert here? ] 

Fake charities

Some scammers will claim that they are gathering funds for hurricane victims, an overseas relief effort, an outreach ministry, and so on. Be on the lookout for organizations that use phony names to appear as legitimate charities. An illegitimate charity may ask you for cash donations and/or your Social Security number and banking information before offering a receipt. You should do your own research on any potential charity group before making any contributions to ensure they are a legitimate entity [ any websites or databases that log this data? ] with a good reputation within their community. 

Inflated refund claims

In this scenario, the scammers do prepare and file 1040s, but they will charge large fees up front or claim an exorbitant portion of your refund. The IRS specifically warns against signing a blank return and trusting preparers who charge based on the amount of your tax refund.  Again, doing thorough research on potential tax professionals you plan on establishing relationships with, is the key to prevent being taken advantage of.


This content is developed from sources believed to be providing accurate information, and provided by Twenty Over Ten. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security.

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