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Posted: March 04, 2009

Operation tax burden reduction

A tax-time primer for understanding taxes and building wealth

William Brinckerhoff

Now, more than ever, working to reduce your tax burden is critical to overall wealth management. With April 15 quickly approaching, it’s a good time to examine your finances and get things in order for filing taxes, and for your financial future.

Before you meet with your tax advisor, you should also meet with your financial advisor to prepare. Together, you’ll want to review and understand how some items can impact your taxable income and what you pay.

Capital gains and losses

If you sell an investment for a profit, the capital gains are taxable — though usually at a lower rate than regular income. It is important to understand your capital gains, or losses, for 2008. Review your investment account statements to pinpoint any of these gains or losses (the exception being for tax-deferred investments like a 401K).

Reviewing capital gains and losses with your financial advisor will not only help you prepare for filing your taxes, it will also help you create comprehensive wealth management plan for 2009.


Make sure you have all 1099 forms that report interest, dividends, sales and other transactions. It’s important to check with your financial advisor on whether or not you’ve received all relevant 1099 forms, or if you should expect more.  In doing so, you can help ensure full and accurate information for your tax advisor, which will make filing go more smoothly.

Philanthropic contributions

Discuss what qualifies as a charitable contribution and have the appropriate documentation. Philanthropic giving is an important component in tax filings, and reviewing your contributions for 2008 will also be helpful in planning for 2009.  Going over your giving for the prior year with an advisor will be an important factor in assessing your charitable strategies for the future and can help you address your altruistic intentions in a tax-efficient manner.

Education expenses

Certain types of education payments may qualify for beneficial tax treatments. Reviewing your education savings options — like a 529 plan — with your financial advisor may give you a tax-friendly, head start on providing for your child’s education.

Phantom income

Be aware of any “phantom income” you may have. Phantom income is the result of a tax liability being present where there is no cash flow. For example, a loan may be forgiven, but there is still tax responsibility for the money.  Reviewing any sources of phantom income with your advisor will prepare you for the potentially unexpected.

Tax planning is a key component of your overall wealth plan.  Proper planning can help ensure you keep more of what you earn, as well as protect what you’ve spent a lifetime building.

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William Brinckerhoff is executive director and Denver branch manager for UBS Financial Services, Inc.

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