More momentum is building for another large tax revision to the US tax code by end of year and one thing is for sure, the final version won’t be subtracting any pages from a document that now contains nearly 10,000 selections and two million words. In just the last 10 years, the tax code has been amended or revised over 4,000 times with provisions covering pet moving expenses for people who lost their job, a deduction for clarinet lessons if it helps correct a child’s overbite, and a special carve-out for repairs for whaling boats (even though hunting whales is currently banned by the United States government).
One area that we feel we excel in is the long-term tax planning that we offer our clients which sometimes takes getting creative with the more contradictory provisions of the tax code. Consider, for example, the limits on high income taxpayers who might want to make Roth IRA contributions but conversely people at any income level are eligible to make Roth Conversions.
So it’s possible (and easy) for higher income individuals to make non-deductible contributions to their traditional IRA and then move those traditional IRA contributions to a Roth account and the taxation would be the same as if the taxpayer had contributed to a Roth in the first place. (The “back-door” contribution strategy, which sounds vaguely sketchy, but is perfectly legal)
Every year, planning professionals and tax experts pore over the new tax provisions for contradictions and loopholes. This next tax bill, whenever it comes, will be no exception but rest assured that we will be scouring every page for the financial planning strategies to take advantage of these potential tax loopholes of the future.