09/10/2026
A long message but a good read:
Recordkeeping and Tax Planning,
Roth IRA Conversions, and
Estate Planning
Dear Clients and Friends,
The first step of good tax planning is good recordkeeping
Year-round tax planning is for everyone. An important part of that is recordkeeping. Gathering tax documents throughout the year and having an organized recordkeeping system can make it easier when it comes to filing a tax return or understanding a letter from the IRS.
Good records help:
• Identify sources of income. Taxpayers may receive money or property from a variety of sources. The records can identify the sources of income and help separate business from nonbusiness income and taxable from nontaxable income.
• Keep track of expenses. Taxpayers can use records to identify expenses for which they can claim a deduction. This will help determine whether to itemize deductions at filing. It may also help them discover potentially overlooked deductions or credits.
• Prepare tax returns. Good records help taxpayers file their tax return quickly and accurately. Throughout the year, they should add tax records to their files as they receive them to make preparing a tax return easier.
• Support items reported on tax returns. Well-organized records make it easier to prepare a tax return and help provide answers if the return is selected for examination or if the taxpayer receives an IRS notice.
In general, the IRS suggests that taxpayers keep records for three years from the date they filed the tax return. Taxpayers should develop a system that keeps all their important information together. They can use a software program for electronic recordkeeping. They could also store paper documents in labeled folders.
Records to keep include:
• Tax-related records. This includes wage and earning statements from all employers or payers, interest and dividend statements from banks, certain government payments like unemployment compensation, other income documents and records of virtual currency transactions. Taxpayers should also keep receipts, canceled checks, and other documents – electronic or paper - that support income, a deduction, or a credit reported on their tax return.
• IRS letters, notices and prior year tax returns. Taxpayers should keep copies of prior year tax returns and notices or letters they receive from the IRS (many experts recommend keeping 7 years). These include adjustment notices when an action is taken on the taxpayer’s account.
• Property records. Taxpayers should also keep records relating to property they dispose of or sell. They must keep these records to figure their basis for computing gain or loss.
• Business income and expenses. For business taxpayers, there's no particular method of bookkeeping they must use. However, taxpayers should find a method that clearly and accurately reflects their gross income and expenses. Taxpayers who have employees must keep all employment tax records for at least four years after the tax is due or paid, whichever is later.
• Health insurance. Taxpayers should keep records of their own and their family members' health care insurance coverage. If they're claiming the premium tax credit, they’ll need information about any advance credit payments received through the Health Insurance Marketplace and the premiums they paid.
Tax planning doesn’t stop after a taxpayer files a tax return
Year-round tax planning pointers for taxpayers
Here are some simple things taxpayers can do throughout the year to make filing season less stressful.
Organize tax records. Create a system that keeps all important information together. Taxpayers can use a software program for electronic recordkeeping or store paper documents in clearly labeled folders. They should add tax records to their files as they receive them. Organized records will make tax return preparation easier and may help taxpayers discover overlooked deductions or credits.
Identify filing status. A taxpayer's filing status determines their filing requirements, standard deduction, eligibility for certain credits and the correct amount of tax they should pay. If more than one filing status applies to a taxpayer, they can get help choosing the best one for their tax situation with the IRS’s Interactive Tax Assistant, What Is My Filing Status. Changes in family life — marriage, divorce, birth and death — may affect a person's tax situation, including their filing status and eligibility for certain tax credits and deductions.
Understand adjusted gross income (AGI). AGI and tax rate are important factors in figuring taxes. AGI is the taxpayer's income from all sources minus any adjustments. Generally, the higher a taxpayer's AGI, the higher their tax rate and the more tax they pay. Tax planning can include making changes during the year that lower a taxpayer's AGI.
Check withholding. Since federal taxes operate on a pay-as-you-go basis, taxpayers need to pay most of their tax as they earn income. Taxpayers should check that they're withholding enough from their pay to cover their taxes owed, especially if their personal or financial situations change during the year. To check withholding, taxpayers can use the IRS Withholding Estimator. If they want to change their tax withholding, taxpayers should provide their employer with an updated Form W-4.
Make address and name changes. Taxpayers should notify the United States Postal Service, employers and the IRS of any address change. To officially change a mailing address with the IRS, taxpayers must complete Form 8822, Change of Address, and mail it to the correct address for their area. For detailed instructions, see page 2 of the form. Report any name change to the Social Security Administration. Making these changes as soon as possible will help make filing their tax return easier.
Save for retirement. Saving for retirement can also lower a taxpayer's AGI. Certain contributions to a retirement plan at work and to a traditional IRA may also reduce taxable income.
Roth IRA Conversions
When a traditional IRA has dropped in value and/or your income will be taxed at a higher rate in the future than it is right now, converting some or all of your traditional IRA into a Roth IRA becomes attractive. We can’t say what tax rates will do in the future, but there’s a good chance that the former is true right now. Converting your traditional IRA to a Roth IRA will trigger a current tax hit on the amount you convert. But, if your traditional IRA balance is at a depressed level (or possibly your overall income level is low this year), the tax hit might not be too bad. After the conversion, your new Roth IRA balance can build up federal income tax free. Eventually, you can take tax-free withdrawals after age 59½ when your marginal tax rate may be higher than it is right now.
In addition to the potential for tax-free withdrawals, Roth IRAs are attractive because there are no required distributions during the account owner’s lifetime. This means funds can grow tax free in the account longer than in a traditional IRA. Also, Roth IRA contributions can generally be withdrawn tax free at any time. But be careful! If you convert a traditional IRA to a Roth IRA, you have to wait at least five years to get the converted amount out free of tax.
Roth Conversion Basics
A Roth conversion is treated as a taxable distribution from your traditional IRA because you are deemed to receive a taxable payout from your traditional IRA with the money then going into the new Roth IRA account. So, a conversion will generally trigger a current federal income tax bill (and maybe a state income tax bill, too). But the conversion tax hit is reduced if the value of your traditional IRA has been beaten down by stock market losses.
Conclusion
The potentially low current tax cost for converting plus the chance to avoid tax on income and gains that will accumulate in your Roth IRA when the stock market bounces back may make a Roth conversion beneficial for you. There are a number of variables to consider. We would welcome the opportunity to work with you to ensure a well-informed and thoughtful decision.
Estate Planning
You need an estate plan, regardless of whether or not you are among the ultra-rich. As recent news has shown, even those who have won the lottery or have substantial wealth can fall victim to poor estate planning.
While federal estate taxes may not concern you, you need a will to have your wishes honored after your death. Without a will, state law dictates the distribution of your assets, which may not align with your intentions. Additionally, if you have minor children, a will allows you to name a guardian to care for them in the event of your untimely passing.
Your heirs will want to avoid probate because it can be a costly and time-consuming legal process. A living trust gives you a valuable tool to avoid probate. By transferring legal ownership of your assets to the trust, you can ensure that your beneficiaries receive them without suffering through probate.
You can amend your living trust as circumstances change, providing flexibility and control over your assets.
It is also essential to keep your beneficiary designations up-to-date, as they take precedence over wills and living trusts regarding asset distribution.
Additionally, if your estate will suffer from federal or state death taxes, you should plan to minimize your exposure.
Estate planning is not a one-time event but a process that you should review and update regularly to accommodate life changes and fluctuations in estate and death tax rules. We recommend checking your estate plan annually to ensure it aligns with your wishes and circumstances.
