By Bruce Helmer, President of Wealth Enhancement Group

Taxes can be complex and an overlooked element of a financial plan. Yet, tax planning is critical to long-term financial success. Obviously, your goal is to pay as little tax as possible. But just as you never want to invest without considering tax implications, you never want to invest for only tax reasons. Tax reduction is one part of the potential total return that you must analyze.

When exploring how investments may be treated for tax purposes, I find it useful to think of a home office and individual filing cabinets:

• The first filing cabinet is for taxable investments: Earnings on these investments are fully taxed in the year earned.
  
  
• The second filing cabinet is for tax-deferred investments: Taxes on these investments are not paid when earned but are deferred until withdrawn, such as with 401(k)s and IRAs.
  
  
• The third filing cabinet is for tax-advantaged investments. This category includes deductions and credits that may reduce one’s tax obligation.