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Tax efficient financial planning Essay


Taxes are inevitable, and since their impacts on our clients, investment, and income are adverse, our company should create awareness on the various vehicles one can use to reduce taxation. The viable tax reduction vehicles include retirement plans such as traditional IRAs and Roth IRAs, financial planning techniques, and long-term investment holding period among others.

Types of Vehicles Our Clients can use to Reduce Taxation

Our clients are certainly subject to different forms of taxation such as income, capital gains, and estate taxes. Taxes have adverse cumulative impacts on our clients’ income and investments such as a reduction of expected returns. Therefore, our company should consider all forms of taxation when creating wealth, land, and financial plans for our customers. Fortunately, several vehicles do exist, that our clients can use to minimize their income, capital gains, and estate taxes as explained herein.

Minimizing income tax

Our clients can minimize their income taxes by opening personal controlled retirement accounts like an IRA; whereby, they can be contributing annually. An Individual Retirement Account (IRA) is a self-directed retirement account comprising of “certificates of deposit, treasury bills, mutual funds, bonds, stocks and other investments for which a holder of the account contracts on his or her own” (Buckner, 2010).

Any income saved in a conventional IRA benefit forms income-tax exemption until when that money is withdrawn. Here, it is pertinent to note that, these monies are usually withdrawn when a taxpayer is in the low-tax bracket. These contributions will reduce one’s present taxable income. The monies put in an IRA are deducted from a worker’s income before it is taxed. It is then allowed to grow tax-free until the worker retires.

IRAs are normally subject to various government regulations and limitations. However, unlike the employer-sponsored retirement arrangements, IRA contributions, although they are kept by an annuity or a trust, are usually under the full control of an individual account holder with regard to withdrawals and selection of investments (Buckner, 2010). Furthermore, small business owners and other self-employed individuals can take part in self-directed and self-sponsored retirement accounts.

Financial planning methods are also effective in reduction of tax impacts for both estate and income taxes (Alesco Advisors, 2008). Prime examples of income tax planning methods that our clients can use include those that comprise of suspending and eliminating potential capital gains in appreciated property, letting one’s wealth accumulate without present income taxation and postponing taxation.

Moreover, they can consider taking returns as capital gains, eliminating or reducing taxes, and transferring the tax burden to others (Hallman & Rosbenbloom, 2003, p.281). Our company should also ensure that our clients are making appropriate use of their income regulation deductions like student loan interest credit.

Minimizing capital gains tax

Capital gain refers to the difference between the buying price of an asset and its selling price. In addition, just like the taxman wishes to cut an income tax from one’s income, s/he also would like to tax your gains from any of your investments. This tax is referred to as capital gains tax. Therefore, our company needs to guide our esteemed customers on vehicles they can use to reduce their capital gains taxes.

In most cases, our clients are bound to encounter capital gains taxation from the sale of their real estates or stock investments. Our customers should understand and appreciate the fact that the U.S taxation system is designed in a way that benefits the long-term investor. In other words, short-term investments are taxed highly than long-term investments. A short-term investment is held for a maximum of one year while a long-term investment is held for more than one year and a maximum of five years.

Our clients can use different vehicles to reduce their capital-gains taxes including retirement plans, use of capital losses in offsetting gains and adapting long-term investment holding periods (Black, 2010). Even though, unforeseen changes and circumstances may make one sell his or her shares earlier than s/he envisaged, our clients should strive to find large companies and hold shares for a longer period (Black, 2010).

Doing so will enable them pay capital gains taxes at the lowest rates possible. Our clients should also consider various types of retirement plans such as 401k, Roth IRAs, 403bs, and traditional IRAs through which their investments are allowed to grow without being subject to capital gains taxation (Black, 2010). As mentioned earlier, these plans do not require you to pay taxes for them until when they are withdrawn, when you will already be a low-tax bracket.

Minimizing estate tax

Estates taxes can be reduced in various ways. For instance, our clients can keep their states at or below the yearly exclusion by giving excess monies to their relatives (Maddoff, et al, 2008, p.539; Quinn, 2005, p.2). They should also consider drawing up the available forms of trusts to help them reduce estate taxes such as bypassing the estate: credit shelter trusts.


Tax efficient financial and investment planning is possible through various available tax reduction vehicles. These vehicles include retirement plans, long-term investment holding periods, and financial planning techniques among others. Our company should educate our esteemed clients on the most effective tax reduction vehicles depending on an individual’s financial and investment needs.


Alesco Advisors. (2008). Tax Efficient Investing. Web.

Black, P. (2010). Getting Real About Capital Gains. Financial Planning. Web.

Buckner, G. Minimizing Income Tax on a Roth Conversion. Fox Business. Web.

Hallman, G., & Rosbenbloom, J. (2003). Personal Financial Planning. New Delhi: McGraw-Hill Professional.

Maddoff, R., Tenney, C., Hall, M., & Mingolla, L. (2008). Practical Guide to Estate Planning 2009. New York, NY: CCH.

Quinn, J. (2005). Please give generously: High-net-worth charitable giving can be more than random act of kindness. Web.

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IvyPanda. (2019) 'Tax efficient financial planning'. 22 November.

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