May 2017 
Copyright Vasin Leenanuruksa

Greetings from WFA! Spring is a beautiful  season: blossoming flowers and trees and pleasant, sunny days. With spring also come taxes, the theme of this Woodward e-newsletter. Every year, we request clients' tax returns so we can review them. But what exactly are we looking for? Read below to learn more. Once you've read about why we review clients' returns, give the Income Tax Cocktail a try! Finally, though not directly related to taxes, you can read about some of the exciting things happening behind the scenes at Woodward.

"What is the difference between a taxidermist and a tax collector? The taxidermist takes only your skin."
Mark Twain

With the tax filing deadline in the rear-view mirror, the team at Woodward Financial Advisors is ramping up our process of reviewing our clients' tax returns to summarize the 2016 tax year and - perhaps more importantly - to plan for 2017 and beyond.

Why do we do this?
Tax planning is a valuable element of our service offering that fits in with our comprehensive financial planning approach. Taxes, income, and investments are all interconnected. Our objective is to integrate these elements and develop recommendations specific to each client's individual circumstances. A current tax return serves as our starting point.

But tax returns are backward looking. Are they really that useful for future planning?
Absolutely! Even though it's not the only data that we use, a current return provides us with a good baseline of a client's income sources and deductions. We know that some tax items will stay roughly the same and others may change, so we start with the latest return and then layer on other tax planning information.

What are some examples of "other" tax planning information?
Throughout the year, (particularly in the first two quarters) we talk to clients to get an idea of changes that might impact their tax planning. Some examples include:

* Projection of current year income for full time and/or part time work
* A sizable bonus in cash or stock
* A plan to retire or move to a Continuing Care Retirement Community (CCRC) in the current year
* Election to claim Social Security Benefits
* Commencement of IRA required minimum distributions
* Plan to make a sizable charitable gift
* An increase in rental income or deductions from a rental property

You mentioned that you start preliminary tax planning in the first half of the year. How does your planning evolve in the second half of the year?
Our clients' income pictures tend to become a lot clearer then, both in terms of earned income and income generated by their investment accounts. With that information, we coordinate with our clients' CPAs to refine our initial projections and implement our recommendations.

What are some specific items you look for during your tax return review and planning process?
We look for items that might have deviated from a regular pattern, in addition to some key items that may have been omitted or captured incorrectly:
* If a client paid their management fee from a taxable account, was it shown as a deduction?
* Were all known charitable contributions captured on the return?
* Were all 401k rollovers correctly coded as being non-taxable?
* Did the client miss a chance to take an available tax credit?
* Is an amended return necessary because of errors or omissions?

Okay, so you've reviewed the client's return for missing or mischaracterized items. What other tax planning are you doing and what are the benefits to clients?
For clients who are still working - particularly high income earners - we will encourage them to reduce taxable income by deferring salary into traditional workplace retirement plans like 401k, 403b and 457 accounts. The marginal rate system (shown below) taxes higher "buckets" of income at higher rates. If clients will be in lower brackets during retirement, it makes sense to defer taxes on contributions now and pay the taxes upon distribution from those retirement accounts, when the tax rates will probably be lower.

We may also suggest that charitably inclined clients make larger gifts in higher income years, to reap a more valuable deduction (due to their higher marginal bracket). 

The reverse might be true for clients facing low income years. In those cases, we may look to strategically "fill up" the 10% and/or 15% tax bracket to take advantage of low rates. For example, if a client has retired and hasn't yet claimed Social Security benefits, we might consider taking an early IRA distribution or performing a Roth conversion and locking in a low tax rate on those dollars. Additionally, we may harvest realized gains for clients whose taxable income lands them in the 15% tax bracket, as capital gains are taxed at 0% at the federal level for those folks.

Regardless of each client's tax situation, there's probably one or more tax strategies available to reduce their tax bill. After reviewing hundreds of returns, we're well versed in the terminology and intricacies of tax returns. Our thorough tax return review process helps us better understand our client's overall financial picture and allows us to implement specific tax planning strategies that are consistent with their other financial planning goals. 
The Income Tax Cocktail Article2.1
Copyright Marco Mayer

The personal income tax first appeared in the United States in the 1860s as a way to generat e funds for the Civil War: the Revenue Act of 1861 imposed a tax of 3% on all incomes over $800. Congress imposed additional Revenue Acts during the war, but repealed all of them in 1872. 

Forty years later, Congress established the legal foundation for today's income tax by proposing and ratifying the Sixteenth Amendment in 1913. Then at some point in the 1920s, someone creatively devised the only appropriate method for dealing with income taxes, namely by creating the Income Tax cocktail.

Like most things in the tax code, the actual origins of the drink are murky at best. No one is quite sure who invented it or how they chose the name. It's not a complicated drink: the Income Tax cocktail is essentially a Bronx cocktail with bitters added (which some have speculated is supposed to reflect the bitterness of having to pay taxes!).

But in honor of this year's Tax Day, we thought we would pass along the recipe to you. Enjoy (in a safe, responsible and adult manner, of course):
  • 1 ½ ounce Gin
  • ½ ounce Dry Vermouth
  • ½ ounce Sweet Vermouth
  • 1 ounce Fresh Squeezed Orange Juice
  • 2 dashes Angostura Bitters
  • Orange Wheel or Orange Twist (garnish).
Combine liquids in a cocktail shaker with ice. Shake until well chilled. Strain into a chilled cocktail glass. Garnish with orange wheel/orange twist.

Take a long, slow sip.

Write checks to the Internal Revenue Service.

Repeat as necessary.
(Recipe courtesy of The Intoxicologist,

Behind the Scenes at Woodward Financial... Article3
  • Our colleague, Veronica ("Roni") Pflueger, passed the CFP exam (on her very first try, no less!) in March and has begun working on the required experience component of becoming a CFP®. Please join us in congratulating Roni on this milestone achievement. We're delighted she joined Woodward last summer!
  • Advisors have been busy with continuing education and conferences over the past several months. Check out what some of them have been up to below:
  • Allison Palmer participated in Low Load Insurance Services' "Insurance Academy" in February. The program was excellent and full of helpful information related to insurance planning. Speakers included experts on disability, life, and long term care insurance. There were also sessions on underwriting processes and planning for complex insurance issues.  
  • Jim Miller participated in TD Ameritrade's Advisory Panel conference in Kiawah, SC.  The panel is made up of a select group of 20 top-level firms and serves as a sounding board for new initiatives. Membership in the group provides Woodward with access to top leadership and resources at TD Ameritrade. A fun fact: it was during this conference that Jim tasted his very first oyster. 
  • Roni Pflueger attended a MoneyGuidePro conference at their headquarters in Richmond, Virginia in April where she had the opportunity to explore the software in-depth and learn from their experts. MoneyGuidePro is the software WFA utilizes to run clients' retirement projections. 
  • On April 21st, Ben Birken led a personal finance seminar for Master's students in the Department of Health Policy and Management at the UNC-Chapel Hill Gillings School of Global Public Health.
  • The (first) tax deadline for 2017 is now behind us: if you're a client and haven't yet provided us with electronic or hard copies of your 2016 tax return, please do so when you have the chance. You may upload a file to your secure web portal, drop it by the office or mail it to us. As you know, it's never a good idea to email a return without password protection or additional security. If you have questions, email Maggie Wilkins ( 
Thank you for reading our spring e-newsletter. Enjoy the remainder of this beautiful time of the year!

Woodward Financial Advisors