There are only two things that are certain in life. Death and taxes. Because both these topics show up on the “uncomfortable conversation topics” list, I thought they’d be a great combo.
Since we’ve already established that it is basically impossible to avoid either one of these, it becomes only a matter of preparing for them.
Here are some thoughts on both (with help from some local professionals).
Paying Uncle Sam
Every year on April 15th, Uncle Sam comes calling. For some, taxes are fairly simple. For others, especially when business taxes get involved, the situation gets more complex. Regardless of the situation, there are strategies to lower our annual tax bill.
Mike Squires, an owner and Certified Public Accountant (CPA) at Sierra Vista CPA, commented:
“One of the main jobs of a tax preparer is attempting to minimize the amount of tax paid by the taxpayer. For many taxpayers this is accomplished adequately after the year is done and the dust is settled, but for many others it may require some proactive and comprehensive tax planning. The idea of tax planning is to arrange the financial affairs of the taxpayer so that they ultimately end up owing as little in taxes as possible. This can be done in three basic ways: reducing taxable income, increasing deductions, and/or taking advantage of available tax credits.”
Tax deductions and credits exist because the government is trying to incentivize certain behaviors. For example, the government incentivizes investing in IRA’s by making your contributions tax deductible. The government is happy because you are saving for your retirement and you are happy because you pay less in taxes. It is a win-win.
Taxes don’t always have to be painful if we take advantage of the win-win situations that are written into the tax code.
Planning For Those You Leave Behind
Although it is not fun or popular to talk about, we are all going to die. It could be tomorrow or in 100 years. We don’t know. The important thing is to have our ducks in a row so that we are not leaving a burden for those left behind.
Nathan Williams, a local attorney at Williams Melo, PLC, shared the following with me:
“A few years ago, I was involved in a case where an employee was accused of violating an unwritten departmental policy. At one point in the proceedings, the employee’s attorney successfully argued “If it wasn’t in writing, it didn’t exist,” and the employee prevailed on the matter. The same principal applies equally well to a person’s estate plan – if it’s not in writing, it doesn’t exist. Regardless of a person’s good intentions and regardless of how many people know of a decedent’s wishes, unless those wishes are put in writing, Arizona’s default laws will control the distribution of that person’s assets after they have died. This could lead to some or all of a person’s estate being inherited by someone other than the decedent’s choice.
While everyone’s situation is unique and there really is no “one size fits all” solution, there are a few things people should keep in mind when planning their estate. First of all, wishes and desires should be put into writing. Whether that’s through a written will, a trust or other beneficiary designation, having your wishes in writing avoids confusion and prevents Arizona’s default rules from controlling the distribution of the estate. Secondly, people should consider who they could trust to handle their affairs both during periods of incapacity and after they have died. In addition to wills, etc., powers of attorney are vital to avoid confusion and court involvement in a person’s affairs. Finally, an estate plan should contain instructions pertaining to end of life care, such as in a living will or advanced medical care directive.”
Conclusion:
While all of this can become complicated, it doesn’t have to be. Just focus on two basic questions.
Am I being smart with my taxes by finding the win-win situations?
Am I confident that my family and loved ones will be taken care of regardless of what comes my way?
While death and taxes are an unavoidable part of life, they don’t have to be the focus of our lives. If we educate ourselves and take action now, we are then free to focus on all the other aspects of life that really mean something to us.