For our Affordable Family Office clients, tax planning is a year-round activity.  2017 presented us with a unique tax planning opportunity, as we saw tax reform enacted in December.  Broadly speaking, this tax reform will both limit deductions and reduce federal tax rates in 2018 & beyond.  Our 2017 tax planning strategies generally revolved around maximizing 2017 deductions in preparation for the 2018 tax code changes.  As we wrap up tax preparation season, we thought we’d share a handful of examples of tax planning strategies executed in 2017, as we were able to see the fruits of this labor when we filed our clients’ returns.

More income….. Less taxes?!


Realizing $38,000 of additional income helped reduce our client’s tax by over $1,000.  See below for some facts and circumstances behind the tax planning for the above example:

  • Client is charitably inclined and would not be able to itemize deductions (and deduct charitable donations) in 2018 & beyond due to tax law change.
  • D3 recommended donating 5 years’ worth of charitable donations, or about $40,000 of appreciated assets into a Donor Advised Fund. This allowed client to dispose of appreciated assets without paying capital gains tax, as well as realize charitable deduction in 2017.
  • Because donating appreciated assets limits the charitable deduction to 30% of adjusted gross income, the client was only able to deduct about $30,000 of the $40,000 donation.
  • D3 realized about $38,000 of long term capital gains prior to year-end. These gains were taxed at the 0% federal rate.  This additional income allowed client to deduct full $40,000 of charitable contribution, resulting in federal tax reduction of over $1,000.   Because the client wanted to maintain positions in the gifted investments, this also allowed client to increase basis in these positions for future tax saving opportunities.
  • Client also had qualified college expenses for their daughter, which allowed them to claim the American Opportunity credit, which is a refundable credit up to $1,000.
  • As a result of the above strategies, the IRS actually paid our client $1,000 for tax year 2017!

Young, Semi-Retired Corporate Executives Super-funding Roth Accounts with Minimal Tax Impact


A middle-aged couple with three children started semi-retirement in a dream location after benefiting from a lot of hard work and a liquidity event that provided them after-tax funds.  Our strategies allowed them to move over $73,000 into tax-free Roth IRAs, and over $59,000 into Solo-401k accounts, realize over $20,000 of capital gains, while paying no federal or state tax income tax (they only paid self-employment tax).   See below for some facts and circumstances behind the tax planning for the above example:

  • Husband and wife had a total of about $137,000 of business income.
  • D3 recommended $60,000 of Roth conversions as well as $13,000 of Roth IRA contributions.
  • Solo 401k contributions, self-employed health insurance/tax deduction, and itemized deductions, including a large charitable contribution offset Roth conversion income and a significant amount of the business income.
  • D3 recommended paying $4,000 of qualified education expenses from taxable account and the remainder from a 529 college savings plan to maximize American Opportunity credit. D3 also recommended maximizing 529 plan 2017 contributions to offset all of their state income. As a result, they paid no state income tax.
  • The end result of this tax planning  was to eliminate all federal and state income tax and use the remainder of the tax credits to offset a portion of Self-Employment Tax.

-1% Tax Rate on $125,000 of income


A business owner had an off year, which presented the opportunity to realize capital gains at the 0% federal rate while maintaining eligibility for the Child Tax credit.  See below for the  facts and circumstances behind the tax planning for the above example:

  • Client had wages of $60,000 and business loss of about $7,000.
  • Client has two children under the age of 17, making them eligible for the Child Tax Credit.
  • D3 recommended taking $48,000 of long term capital gains to maximize income taxed at the 0% federal rate, while maintaining eligibility for the Child Tax Credit. Realizing these gains and reinvesting in the same assets allowed the client to increase basis in these positions for future tax saving opportunities.
  • As a result of the above strategies, the IRS actually paid our client $1,250 for tax year 2017!

Working clients fund a lifetime of charitable contributions, while making Roth conversion at 15% rate


A working couple with large charitable intentions is projected to lose their ability to fully deduct charitable contributions under the new tax law.  D3’s strategies increased their income to allow full deductibility of 2017 charitable contributions while converting funds from pre-tax traditional IRA accounts to tax-free Roth IRA accounts.

  • Clients had wages of $172,000.
  • D3 projected that client could fully fund lifetime of charitable donations with a $108,000 donation in 2017. However, deduction was limited due to AGI limits of charitable contributions.
  • D3 recommended they make a $108,000 Donor Advised Fund contribution, in conjunction with a $46,000 Roth IRA conversion. This killed two birds with one stone, as it allowed the full charitable deduction for Donor Advised fund contribution in 2017 and allowed the client to convert pre-tax IRA funds to a tax-free Roth IRA at the 15% rate.
  • As a result, our clients paid a 5% effective tax rate on their adjusted gross income of $220,000.

Our Affordable Family Office clients understand the value of having the same company provide financial planning, asset management and tax preparation.  This allows us to integrate tax planning to more efficiently achieve our clients’ unique goals, such as charitable gifting. Additionally, by understanding the overall investment picture (i.e. knowing that a client can realize long-term capital gains at a 0% effective tax rate), we reduce the tax drag on their portfolio while increasing the probability of achieving their financial planning goals.  All  of our CFP® certified planners know taxes and help prepare taxes (we only prepare taxes for our Affordable Family Office clients).  At D3 we design tax planning strategies to help our clients maximize their after-tax wealth. This is part of D3’s Integrated Approach to Your Financial Future.


—Adam Glassberg CFP®, CIMA®