As we approach the end of the year, it is a great time to evaluate your tax situation—both for this year and next. A crucial step in the evaluation process is having a tax projection completed. A tax projection is the process of preparing a pro-forma tax return based on actual year-to-date information and on forecasted information for the remainder of the year. In times such as the past several years where we’ve experienced complex and ever-changing tax laws, a projection also allows for careful analysis in terms of the impact of those changes on your personal situation.

  • A tax projection is like a scorecard for the year. Having one completed will allow you to understand where you stand regarding potential refunds or balances owed. It helps to avoid unexpected results and unpleasant surprises at tax filing time.
  • A tax projection can uncover opportunities. The projection will allow your team at CCM to understand what marginal tax bracket you will be subject to and whether you will be itemizing deductions or taking the standard deduction. For example, the results may lead to a recommendation that you consider a Roth IRA conversion or possibly the funding of a donor advised fund. Nobody likes to look back upon missed opportunities.
  • A tax projection is forward-looking. A prepared tax return is backward-looking. We believe that forward-looking analysis through tax projections leads to better long-term financial outcomes because it places you in a position to proactively impact your situation. We strive to build out tax projections for multiple years at a time so we can readily see the results of decisions on both the current and future tax years to avoid unintended consequences. For example, you do not want to do something that saves you a small amount of tax this year at the cost of paying far more tax in future years.
  • A tax projection leads to communication. Communication is important because it allows both us, and you, to ask questions and share important information. Communication allows us to more fully understand your situation and to learn of changes more quickly so that we can adapt and optimize.

The Tax Team at Carlson Capital Management will be integrating the tax projection process into many year-end client meetings. We encourage you to engage in the process by responding in as timely a manner possible to any requests for information. If you won’t be meeting with our team before year-end, we encourage you to reach out at any time with questions, or if you become aware of changes in your situation that would merit that we complete an updated tax projection.

NOTE: The information provided in this article is intended for clients of Carlson Capital Management. We recommend that individuals consult with a professional adviser familiar with their particular situation for advice concerning specific investment, accounting, tax, and legal matters before taking any action.