“How do I know I am NOT paying too much in personal Federal Income Taxes?”

Stan Wielgus   CPA,     and Jennifer Crawford CPA – Stephano Slack LLC Tax Department


How often have we heard this totally rational question from clients of all income and net worth levels?

The more income you create, the more important the concern.

The answer is brief but the explanation isn’t. It Depends.

It depends on:

-A        The communication you choose to share with your Tax preparer and Vice- Versa.

How can anyone effectively plan in a vacuum devoid of facts or perhaps worse, based upon assumptions?  You need to be certain your professional preparer is fully apprised of your personal financial situation and your overall goals.

-B         The time your tax preparer devotes to your engagement

Obviously, the more time you have allotted the preparer to address your situation, the more complete and attentive they will be to your account. If you squeeze them for the tightest time budget, the less time they will devote to lowering your tax liability.  In complex situations, this approach may be counter-productive!

In an effort to assist in alleviating one’s  “Taxaphobia” we gladly provide a punch list of the more common tax strategies that must be considered.

You may not desire to utilize all of these but at least consider them and then decline or implement.

The personal tax planning game is no longer a game of triples and Home Runs but a game of singles and hopefully doubles.

With that in mind, we suggest you peruse the following punch list to ensure you and your Tax Pro are covering all of the available bases:

  • Qualified Retirement Plans- Simply moving money from one pocket to another produces a tax deduction (Deferral) while still retaining de-facto ownership of the assets that you transfer.

Note in some situations, Defined Benefit plans can provide deductions exceeding $100,000 per year.

  • Be a homeowner! If you live in a principal residence for 2 of the last 5 years, up to $500,000 of gain on a Married Filing Jointly tax return is TAX FREE( in the top federal and PA tax brackets this is a permanent tax savings of 27% or $135,000. ) For Single or Heads of Household, up to $250,000 of gain is tax free.
  • Employees should utilize EVERY employer provided tax deferral available, they do add up.
  • A 401(k) plan may reduce Federal Taxable Wages (18,000 plus 6,000 catch up if over 50)
  • Pay your employee portion of Medical and Dental insurance via a PRE TAX Plan
  • We can think of no situation where you pay your disability insurance premiums pretax. —This will render any future claim as being taxable income at the worst possible time, when you are in a position of needing as much cash flow as possible.
  • Up to $2,500 may be Federally Tax Free if you maximize your Section 125 Plan (flex plan) to pay your uninsured medical costs. (Co-pays, Glasses, Prescriptions, Dental etc.)
  • Health Savings Accounts (HSA) – You may be able to contribute $3,350 (Single) or $6,650 (Family). Those over 55 may contribute an additional $1,000.

These items alone can temporarily or permanently remove $20,000 to $35,000 from federal taxable income saving $7,000 to $14,000 every year!  10 years savings totaling $70,000 to $140,000. Over a 30 year work span that’s $200,000 to $400,000 in tax savings and deferrals.

Certainly those singles do add up to eventually score some home runs.

  • Meet with your investment adviser no less than twice a year
    • Are you and she on the same page, do you need cash flow? If not, are you in tax efficient growth portfolio?
    • COMMUNICATION- Are you expecting a large income event at the office or business? If so, this is a BAD year to realize capital gains or allocate assets to produce greater amounts of interest or dividends.
    • If you have a disposition that creates a capital gain, let your adviser know of this so they can defer capital gains (If financially sound of course). They may also harvest capital losses to help deflate the taxable gain.
    • Let your tax adviser and investment adviser directly communicate with each other. They will be more effective and efficient.
  • Business owners- have you discussed Captive Insurance Companies or IC-DISC’s (if you export)? These are extremely valuable strategies given the correct fact patterns. You should know whether these will or will not help you. A discussion worth having.
  • Kids and Grandkids
    • Section 529 plans are really a “no Brainer”. Some states permit a tax deduction and utilization of the accumulated assets is totally tax free when used on educational expenses and tuition. IT’S VERY IMPORTANT TO COORDINATE THESE GIFTS WITH YOUR ESTATE PLANNING ATTORNEY. Sometimes they do not want to use this vehicle, they prefer the grandparents “spend down” their taxable estate.
    • Consider forming limited partnerships or trusts to let future investments grow outside your estate and also provide “income splitting” among lower income family members.
    • Consider contributing to Roth IRAs for younger (age 16 to 26 as an Example) wage earners. By the time they reach retirement age 40 to 50 years from now, a significant amount of non-taxable income will be available to assist them in those cash starved years. (Assuming no law changes!)
  • Roth Accounts
    • Employees that otherwise do not qualify to contribute to Roth IRAs may participate in an employer sponsored Roth 401(k). There is a debate as to the choice of using the tax deferred account versus the Roth, consult your investment adviser for their opinion.

Death, Dying and the End of the Road

There we have put it on the table!

We all have the same fate, the topic no one ever wishes to discuss: the Federal Estate Tax.


If your Estate is in excess of $5,430,000, you are taxed AFTER you die. How much do they want from us?  40% of your net worth exceeding the Lifetime exemption of $5.43 Million.


You can pass an unlimited amount to your spouse upon dying but his or her estate will then be taxed on the excess upon their passing. (Guys and Gals, we have never heard that this estate tax deferral is a good reason to marry a younger person but in due time we suspect it may be mentioned !!!)

After paying a life time of income taxes, your duly elected representatives want one last bite of your assets.

There are a host of strategies in gifting and estate planning which are beyond the scope of this letter but suffice it to say, the most meaningful INCOME tax strategies are often driven by estate planning strategies.

Your Estate plan is the game plan, the income tax planning is done within the entities and goals set by the estate planner.

SO there you have it:  a list of the most common tax planning strategies and issues. If you have heard nothing new, then we congratulate you for a job well done.

If you are aware of the above but not implementing, then you might be missing out on the opportunities provided you by current tax law.

If you have questions please contact us to help you answer the question that we all have,

Are  WE paying too much in Federal Income Taxes ?

As you can see, it depends.

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