With tax day approaching in mid-April, it’s common to focus on saving taxes in early spring, but how often do you think about anything else? If the answer is “not much,” consider changing please. After all, the ultimate goal of tax planning is to minimize the taxes you pay. for your lifetime — Promote overall growth and asset protection, not just current tax dollars.
Tax planning is therefore most effective when it continues throughout the year. When working with financial advisors, always keep tax savings in mind when discussing them. A number of strategies can be employed to achieve long-term tax savings. Check them out here.
A tax-advantaged retirement plan. Are you choosing the plan that best suits you, taking into consideration your age, employment status, income level, etc.? The most common retirement plans include 401(k), 403(b), SEP/SIMPLE, and IRA.
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Many of these plans often have both traditional (pre-tax) and loss (after-tax) contribution options. Other retirement plans include non-tax deductible traditional IRA contributions and self-employed solo/individual 401(k).
Roth conversion. Is your income relatively low this year? If so, this may be the perfect time to convert your pre-tax dollars into Roth dollars, which will grow and be distributed tax-free.Even if your income level exceeds the Roth contribution cap, It can do backdoor Roth conversions.
Health Savings Account (HSA) and Flexible Spending Account (FSA). Does your employer offer either or both of these tax benefits and do you know the difference between HSA and FSA?
These accounts help you save on FICA (Social Security and Medicare) taxes. (For more information about HSA, see the article HSAs Make Health Care More Affordable and the FSAs article Still Have FSA Money to Spend?)
Tax loss harvest. Is your portfolio actively reviewed for opportunities to recognize capital losses? These losses can offset other investment gains and can be used to reduce ordinary income by up to $3,000 .
Capital losses are carried forward each year until fully used against earnings. (For more information on tax loss harvesting, see our Capital Loss: Rules to Know About Tax Loss Harvesting article.)
Qualified course program. Are you contributing to your state’s 529 plan? Most states offer state tax return credits for these contributions, and when used toward eligible educational expenses, the contributions are increased and tax-free. distributed by.
Also, the 2022 SECURE 2.0 Act now allows 529s to be incorporated into beneficiary Roth IRAs up to $35,000.
charitable donation. Are you maximizing the tax benefits of your charitable contributions? To avoid capital gains tax and receive charitable deductions, donate to donor-advised funds, donate in a single tax year, or highly valued contributions. (Learn more about eligible charitable donations in our RMDs Loom Large, QCDs Offer a Gratifying Tax Break article.)
Retirement withdrawal sequence. Are you withdrawing from your investment account in the most tax-efficient order and percentage? How you structure your retirement withdrawals can have a significant impact on the long-term value of your portfolio.
real estate plan. When was the last time you reviewed your wealth plan? Given recent changes in tax law, is it still most effectively structured to minimize or eliminate your overall inheritance tax liability? Both state and federal property tax laws should be considered .
Tax laws change. Do you stay abreast of ever-changing tax laws and regulations, including deadlines, maximum contributions, required forms and documents, and new laws such as the SECURE 2.0 Act? is the key to optimizing the tax situation for 2020.
Review these strategies with your financial advisor throughout the year and participate in discussions with your accountant to optimize your tax planning and preparation, not only for your annual tax return, but for future returns as well. I can.
This article was written by and represents the views of a contributing advisor, not Kiplinger’s editorial staff.Advisor records can be viewed with the SEC (opens in new tab) or at FINRA (opens in new tab).