A Strong Tax Strategy is Part of a Thoughtful, Comprehensive Financial Plan
Tax season is upon us and, while not every financial advisor is a Certified Public Accountant (CPA), that doesn’t mean they can’t be helpful. Your financial advisor can assist you with making strategic tax moves throughout the year to help reduce your overall tax burden. As you read through the below, keep in mind that the sooner you begin having these conversations with your advisor about your tax strategy, the better off you’ll be at tax time.
Finding Ways to Maximize Your Tax Savings
There are many financial moves you can make throughout the year that will result in paying lower taxes, and a financial advisor will be educated about them. For example, some investment accounts let you make tax-deferred contributions, which can offer you the opportunity to save money on taxes while working to build your retirement savings. Take a company-sponsored 401(k), for instance. If you max out your contributions to this account, all of the money going in is pre-taxed, so you’ll be able to be putting money away for retirement while reducing your tax bill in the present.
Keeping Record of Your Capital Gains and Losses
When filing your taxes, you’ll have to know how much you earned and lost from your investments for that year. A financial advisor will have an accurate and consistent record of your investments, which they can give to your accountant on your behalf. This will save you time and energy, and help you ensure you’re paying appropriate capital gains tax, without over-paying.
Developing a Tax-Savvy Gifting Strategy
There’s a lot to be gained when we gift our money to others. Not only do you get the intrinsic rewards associated with the joy and meaning that comes from helping others, but you can enjoy valuable tax benefits, too. Sit down with your financial advisor and discuss how you can gift your money in ways that ultimately help lower your tax bill, too. And this isn’t just for charities; if you want to give money to your family members for any reason, there are plenty of gifting strategies that let you transfer your wealth without a tax penalty. Check-in with your financial advisor before making any gifts so you can be sure to maximize the opportunity.
Related Article: 5 Common Mistakes High Earners Make
Minimizing the Tax Burden that RMDs Bring
Once you reach the age of 72, you’ll have to begin taking out Required Minimum Distributions (RMDs) from any IRA or 401(k) accounts that you have. While this comes as no surprise, often the uptick in your tax bill from having to pay income tax on those distributions does come as a surprise to retirees. A financial advisor will be able to provide you with management strategies so that you can lower your tax liabilities and be more prepared when the time comes to begin taking distributions.
Determining Tax-Efficient Investment Strategies
Although a financial advisor can’t necessarily protect you from capital gains tax, they will be able to help you by implementing strategies such as tax-loss harvesting, offsetting gains with losses, and avoiding issues such as “phantom tax,” which limit your overall tax liability. So, they’ll not only be able to help you manage and balance a portfolio, but they’ll be able to ensure you’re following the best investment strategies to benefit you the most when it comes time to file your taxes.
Do You Need a Financial Advisor to Assist with a Tax Strategy?
The world of taxes can be incredibly confusing, especially considering they’re constantly changing depending on the economy and new legislation. Having a financial advisor you trust is an important addition to your tax planning arsenal. A financial advisor can guide you throughout the year to ensure you’re making the best financial choices to help boost your tax strategy, with the ultimate goal of allowing you to save more of your hard-earned dollars.
If you think you would benefit from a conversation about your tax strategy, contact Alphastar Wealth by emailing emeraldcoast@alphastarwealth.com, or to schedule a complimentary discovery call, use this link to find a convenient time.
Illuminated Advisors is the original creator of the content shared herein. I have been granted a license in perpetuity to publish this article on my website’s blog and share its contents on social media platforms. I have no right to distribute the articles, or any other content provided to me, or my Firm, by Illuminated Advisors in a printed or otherwise non-digital format. I am not permitted to use the content provided to me or my firm by Illuminated Advisors in videos, audio publications, or in books of any kind.
