I’ve written before that your prospects and clients do not need to know and understand the type of detailed information that’s discussed in these columns.

But you do!

To be the best insurance and financial professional possible, you need access to accurate and dependable information.

Taxes can be the start of so many wonderful conversations with prospects and clients about something they hate to pay….

Particularly during this negative election season, you will hear various opinions. But you must find a way to inspire your prospects and clients to take action, no matter their views. First, you should not use your information to try to prove them wrong — because your prospects and clients are never wrong. Second, do not tell them anything — because people have emotional attachments to their opinions, especially when it comes to money and politics.

Instead, use information to ask powerful and important questions of your clients and prospects. The right series of questions can help people determine a reasoned course of action.

The more you know, the more your client saves

IRS.gov is one of your most important resources for solid, reliable information. Since our products use and provide tax deferred and tax free benefits, a basic understanding of the tax code is required to articulate that value

Everyone in this profession should be required to read the 1040 Instructions each year. Go to IRS.gov and get the instructions. They will help you do a better job for your clients by illuminating:

    • How much Social Security will be taxable;
    • The standard deduction for individuals and couples filing over age 65;
    • The personal exemption for each person filing on the return;
    • Tax allocation; and
    • Progressive tax brackets for singles and joint filers.

For couples filing a joint return over age 65, the standard deduction is $15,500. Each receives a $4,050 personal exemption, for a total of $23,600. If they are only taking a required minimum distribution of $10,000, ask if they have someone they love passionately at the Internal Revenue Service to whom they want to leave a lot of money.

If you know the rules, you know that they could withdraw another $13,600 of fully taxable income from IRAs, 401(k)s, or deferred annuity gains, and pay no taxes. Over 20 years, they could eliminate taxes on $272,000 of fully taxable income! Ask why they aren’t doing that.

If you know the rules, you also know that 10 percent is the first tax bracket. So a married couple will pay 10 percent of the next $18,550 of taxable income after the standard deduction and personal exemption. I also ask my clients to withdraw another $18,550 from their IRA, 401K, or deferred annuity gains. This causes some of their Social Security income to become taxable. So why do it?

Here is the math: My client draws the entire standard deduction and exemptions that total $23,600. The client withdraws the $18,550 discussed above, and their Social Security income is $25,000. Combined, the client has a gross income of $67,150, and $15,052 of their Social Security becomes taxable.

    • Add that $15,052 to the fully taxable withdrawal of $42,150, and this couple has taxable income of $57,102.
    • Now, the first $23,600 is not taxable, the next $18,550 is taxed at 10 percent, and the remaining $14,952.50 is taxed at 15 percent. That totals $4,098, or only 6.1 percent of their gross income of $67,150.

Over 20 years, that 65-year-old couple can withdraw $843,000 of fully taxable money and only pay $51,423 of federal income taxes, even with some Social Security being taxable.

Isn’t that better than paying 40, 50 or even 60 percent at death? Ask them.

Article Created by LifeHealthPro