Tackling tax planning

Tax Planning for Investors: A Discussion with Bill Harris

Key Concepts:

• OBBBA (Omnibus Budget Reconciliation Bill of 2023): Legislation impacting tax provisions, primarily maintaining 2025 levels into 2026.
• Tax Planning vs. Tax Preparation: Proactive planning before the tax year ends to minimize tax liability, versus simply preparing returns after the fact.
• Standard Deduction: A fixed dollar amount that taxpayers can deduct from their adjusted gross income.
• SALT (State and Local Tax) Deduction: The ability to deduct state and local taxes (income, sales, and property taxes) from federal taxable income.
• “Should Dos” vs. “Must Dos”: Distinguishing between actions legally required (filing taxes) and those that are beneficial but optional (tax planning).
• Child Tax Credit: A credit for qualifying children, adjusted annually for cost of living.

Impact of the OBBBA on 2025 & 2026 Taxes

The discussion began with the observation that many are anticipating a large tax refund season in 2025. However, Bill Harris, CEO of Evergreen Wealth, clarified that the impact of the OBBBA on 2025 taxes is “modest.” The primary effect of the bill was to maintain existing tax levels from 2025 into 2026, rather than introducing substantial changes. This means that, compared to previous years, taxpayers won’t see a dramatic shift in their tax obligations.

The Importance of Proactive Tax Planning

Harris strongly emphasized the critical importance of proactive tax planning, stating, “In order to save taxes, you really have to start early in the year and think about the following April 15th.” He contrasted tax preparation (recording past financial activity) with tax planning (strategically managing finances to minimize future tax liability). He shared his experience building tax planning software twice, both times resulting in minimal sales, illustrating a key behavioral insight: people understand they should plan their taxes, but it’s not a must do like filing. He noted that effective tax planning can save individuals “thousands…or for high-income people tens of thousands of dollars.”

Common Misconceptions & Tax Breaks

Many clients are inquiring about potential tax breaks and credits, often based on misinformation. Harris explained that the benefits vary significantly based on income level. For low to moderate-income earners, adjustments to the child tax credit, exemptions for tip income, and overtime revenue, and the standard deduction are relatively minor, primarily reflecting cost-of-living adjustments.

However, he highlighted a significant benefit for seniors in 2026: an additional $6,000 added to their standard deduction, though this is a temporary measure.

The Significance of the SALT Deduction Increase

The increase in the SALT deduction from $10,000 to $40,000 is a “very significant” benefit for high-income individuals residing in states with high taxes. Harris specifically mentioned New York (including New York City), New Jersey, California, and Hawaii as states where this deduction will have a substantial impact. He emphasized that for those in these states paying significant state and local taxes, the increased deduction represents “big money.”

Logical Connections & Frameworks

The conversation flowed logically from assessing the immediate impact of the OBBBA to emphasizing the long-term benefits of proactive tax planning. Harris’s anecdote about the failed tax planning software underscored the psychological barrier to planning, framing it as a “should do” rather than a “must do.” He then segmented the potential tax benefits by income level, providing specific examples for different taxpayer groups.

Data & Statistics

• SALT Deduction Increase: From $10,000 to $40,000.
• Senior Standard Deduction Increase: An additional $6,000 for 2026.
• Potential Tax Savings: Thousands of dollars for many, tens of thousands for high-income earners through proactive planning.

Notable Quotes

• Bill Harris: “You must file your taxes. You should plan your taxes. So don’t fall into that trap.”
• Bill Harris: “Start thinking about 2026 taxes now. Start planning so that you can save thousands of dollars next season.”

Synthesis/Conclusion:

The key takeaway from the discussion is that while the immediate impact of the OBBBA on 2025 taxes is limited, proactive tax planning is crucial for maximizing savings in 2026 and beyond. Taxpayers should move beyond simply preparing their taxes and actively plan their finances throughout the year. The specific benefits available vary significantly based on income and location, with seniors and high-income individuals in high-tax states potentially benefiting the most from recent changes. The conversation highlights the importance of understanding individual tax situations and seeking professional advice to optimize tax strategies.