The Importance of Annual Tax Projections With Your Financial Planning Team

By Michael Torney, CFP, J.D., LL.M.

For individuals or couples earning a high income this year, it’s important to determine not only how to allocate your earnings to maximize investments, but also to reduce taxes. Doing so is particularly important for people in their 50s and 60s as they prepare for retirement. 

We meet twice every year with most of our clients; one of those meetings includes a thorough review of their income and projected taxes. Once we have this information, we look for planning opportunities that will either reduce taxes now, lower them in retirement, or avoid additional taxes. 

For 2023, a couple filing jointly with a taxable income of $364,201 is in the 32 percent in federal tax bracket. If you find yourself in this situation (or in a higher tax bracket), here are some examples of planning topics that might come up in an annual tax projection discussion: 

Consider Converting Traditional Individual Retirement Accounts (IRA) into Roth IRAs

A business owner or senior-level executive often may want to avoid taxes now, and in the future.  Because people with traditional IRAs will continue paying taxes on annual withdrawals for the rest of their lives, there are certain events that make it attractive to convert those pre-tax assets to a Roth IRA before age 72 when required distributions begin. Though taxes are due when the conversion occurs, there are no taxes owed on qualified withdrawals from a Roth IRA. The benefit of a Roth conversion may occur under a variety of circumstances, such as when the owner does not need the funds from required minimum distributions, beneficiaries that would be subject to higher tax rates, and possibly smaller Medicare premiums or taxes owed on Social Security benefits.  

Avoid the Surprise of a Large Tax Bill  

Have you had the unpleasant experience of owing a large amount of tax unexpectedly?  A tax projection can avoid this surprise.  Walking through the income you’ve received year-to-date and the expected income through the end of the year will provide your estimated federal and state tax liability.  We compare that against what you’ve already withheld/paid in estimated payments.  If you need to have more funds available for tax time, you’ll know well in advance. 

Create a Game Plan on Equity Compensation  

For many individuals, equity compensation is a significant part of their financial picture.  While equity compensation programs vary by company, often there are a number of programs clients participate in simultaneously.  This might include restricted stock, stock options, employee stock purchase plans, stock appreciation rights, and others.  Each program comes with different tax implications.  Using a tax projection can help clients figure out what decisions to make with their equity compensation in a given tax year along with planning for cash flow for the next year’s equity purchase decisions. 

Charitable Contributions

We often use tax projections to have a broader conversation on charitable giving with clients.  For a new client who has ongoing annual charitable goals, there are a number of strategies available to reduce the cost of the gift for a client. The tax projection is used to identify the opportunity and begin the conversation on which charitable giving strategy is best for that particular client.   

Plan to Offset Possible Extra Taxes on Investments

Those with investment income and income above certain thresholds may need to pay an additional 3.8% tax called net investment income tax (NIIT). This tax is owed if an individual has net investment income and their modified adjusted gross income (MAGI) is more than $250,000 for couples, $125,000 for individuals filing separately, and $200,000 for single or head of household filers. 

Net investment income includes several categories, but some of the most common ones are capital gains, dividends, taxable interest, rental and royalty income, and the taxable portion of nonqualified annuity payments. 

Another tax that sneaks up on families is the increase in capital gains from 15% to 20%.  This threshold is reached at a taxable income of $492,300 for single filers and $553,850 for a joint return. 

There are strategies that may be able to help avoid the trigger of the NIIT threshold.  There are also actions to avoid generating the type of income that qualifies as net investment income.  Finally, a client can try to avoid moving from the 15% to the 20% capital gains tax rate through certain income management plans.  A tax projection with your financial planning team can facilitate these discussions. 

If you have questions about your 2023 tax projections and would like further information, our team can be reached at


© 2023 Advisory services offered by Moneta Group Investment Advisors, LLC, (“MGIA”) an investment adviser registered with the Securities and Exchange Commission (“SEC”). MGIA is a wholly owned subsidiary of Moneta Group, LLC. Registration as an investment adviser does not imply a certain level of skill or training. The information contained herein is for informational purposes only, is not intended to be comprehensive or exclusive, and is based on materials deemed reliable, but the accuracy of which has not been verified.

Trademarks and copyrights of materials referenced herein are the property of their respective owners. Index returns reflect total return, assuming reinvestment of dividends and interest. The returns do not reflect the effect of taxes and/or fees that an investor would incur. Examples contained herein are for illustrative purposes only based on generic assumptions. Given the dynamic nature of the subject matter and the environment in which this communication was written, the information contained herein is subject to change. This is not an offer to sell or buy securities, nor does it represent any specific recommendation. You should consult with an appropriately credentialed professional before making any financial, investment, tax or legal decision. An index is an unmanaged portfolio of specified securities and does not reflect any initial or ongoing expenses nor can it be invested in directly. Past performance is not indicative of future returns. All investments are subject to a risk of loss. Diversification and strategic asset allocation do not assure profit or protect against loss in declining markets. These materials do not take into consideration your personal circumstances, financial or otherwise.


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