So instead of scrambling to find write-offs and deductions at tax time, try taking a proactive approach to lower your tax bill and increase your income.
Tax Planning: The Basics
Tax planning involves the intelligent analysis and arrangement of your wealth in order to maximize tax breaks and minimize tax liabilities, within the confines of the law.
Proactive tax planning is an essential component of your comprehensive financial plan. With an effective tax planning strategy, you can better enjoy the present knowing that your future is protected.
Step 1: Gathering pertinent information
When putting together your tax planning strategy, we’ll first assess your individual finances from top to bottom, including your:
- Short- and long-term financial obligations
- Family structure
- Business structure
- Investment portfolio
- Expected future earned and unearned income
- Pending asset purchases
Step 2: Selecting the right mix of tax-saving strategies
Next, we’ll use our experience, knowledge, and expertise to cherry-pick a selection of tax strategies to ensure that you:
- Take full advantage of beneficial tax-law provisions,
- Uncover all tax deductions and tax credits, and
- Take advantage of all tax breaks available under the Internal Revenue Code.
Fingerprint Financial Planning™
At Prosperity, we’re committed to learning your Financial Fingerprint™ before making recommendations about products and services.
JUST ONE CONVERSATION CAN CHANGE YOUR LIFE FOR THE BETTER
The Importance of a Tax Planning Strategy
There are many ways to do this:
- Mistiming the sale of appreciated securities
- Withdrawing retirement funds too soon when hanging on for just a little longer would’ve saved you from a stiff penalty
- Failing to arrange for significant tax exemptions
The list goes on and on.
The Prosperity Difference
The last thing you want is to create a bigger tax bill for yourself after failing to use the tax-smart alternative. As your Fiduciary Advisors, we’re here to make sure that you don’t have to learn this lesson the hard way!
That’s why it’s important to consider taxes before pulling the trigger on significant transactions. And considering that federal income tax laws are becoming ever-more complicated, a solid tax plan is more advantageous than ever before.
With a Prosperity Advisor keeping an eye on your tax obligations and opportunities throughout the year, you can stay compliant with the tax code while shielding your finances from unnecessary investment, income, business, life event, and estate taxes down the road.
We’ll work with your CPA and attorneys to forward your important information on your behalf, keep you up-to-date with tax developments, and help you implement tax-minimizing strategies.
Tax Efficient Investing
Investment tax planning involves arranging your assets and managing your transactions in a way that minimizes your ongoing tax obligations. This requires year-round planning.
We’ll help you understand the tax implications of different investments and investment strategies, including:
- Tax loss harvesting
- Tax loss carryforwards
- Tax management
- Tax free municipal bonds
- Capital gains
- Fund distributions
- Fund or ETF selection
- UTMA custodial accounts
- 529 Savings Plan
- Charitable donations
- Investment tax credit programs
- Roth IRA conversion opportunities
- 1031 Exchanges
We’ll help you understand the tax implications of different investments and investment strategies, including:
By reviewing your income, expenses, and potential tax liability throughout the year — and keeping in line with changes in tax laws — we can help you time income and expenses to your advantage. It’s important to be both deliberate and strategic when employing tax planning strategies, and it’s equally important to begin well in advance of your tax-filing deadline.
Contact us to learn how we can help you develop a well-rounded tax planning strategy that minimizes your tax liability as you work toward your financial goals.
13 Smart Tax Planning Strategies
Every year, the taxes you pay reduce the returns you receive from your investments. As a high earner, you must take even more care when it comes to proactive tax planning.
Here are 13 tax planning strategies that can help you meet your long-term income goals.
Tax loss harvesting
Tax loss carryforwards
Tax management
Tax free municipal bonds
Capital gains
Fund distributions
Mutual funds and ETFs
UTMA accounts
Fund a 529 savings plan
Shift up to five times your annual gift exclusion limit out of your estate into a 529 account. This move will shield the growth of your money from future income taxes, so long as the money goes toward the educational expenses of your children or grandchildren.
Charitable donations
If you give regularly to charities, consider putting several years’ worth of gifts into a donor-advised fund (DAF). You’ll be able to spread out the giving from the DAF based on your charitable intent.
Investment tax credit programs
Roth conversions
1031 exchanges
Income Tax Planning
When planning for tax impact on your income, we’ll factor in the types of income that you might receive. Common streams of income include dividends, interest, annuity payments, capital gains, inheritances, employer benefits, and government benefits.
We can help you take advantage of opportunities to manage, defer, and reduce your income taxes by assessing the following items.
STEP 1 Retirement Plan Accounts
STEP 2 Non-Retirement Investment Accounts
STEP 3 Personal Tax Deductions
STEP 4 Tax-Deferred Programs
Additional Planning Situations for Your Future
Life Event Tax Planning
How would changing jobs affect your taxes and benefits?
Would tying the knot cut your tax bill, or will you fall victim to the marriage tax penalty?
How would a divorce affect your next tax return?
As your life changes — through marriage, having children, sending your kids to college, and entering retirement — so does the set of tax rules that affect you. A newborn brings tax breaks; death brings a series of tax repercussions; and there are varying tax considerations for every event in between.
We’ll help you assess how these major milestones can create opportunities or pitfalls, as well as the best way to report, spend, and save for these events.
Business Tax Planning
It’s critical for business owners to keep your tax house in order. Every year, business transactions grow in complexity. The avenues through which your business can be taxed also grow in parallel, and it’s further compounded if your business spans multiple jurisdictions.
Your tax considerations span your choice of business entity, your retirement plan selection, your accounting decisions, and continue through the sale of the business.
Moreover, all your tax obligations—income, employment, estimated, self-employment, excise, sales, and goods and services—hold the real potential to hinder your business’s growth and profitability. By failing to take advantage of all the valid opportunities buried within tax codes, you’ll be losing out on unclaimed rebates, benefits, chargebacks, and deductions.
When you’re ready to move on from your business, you’ll need a plan for proceeding in the most tax-efficient way. This includes working out:
- Buy-sell agreements
- Business valuation issues
- Business succession strategies
- Exit strategies
- Tax planning strategies to minimize potentially massive tax liabilities
We can help you by finding the most effective interpretation and application of tax laws and statutes to defer and/or reduce your business taxes.
Wealth Transfer Planning
If you plan to leave a legacy, you may incur state and federal taxes — including gift, estate, income, transfer, and inheritance taxes.
We can help you understand and minimize these taxes through wealth-protective strategies.
Wills and trusts
When transferring wealth to a surviving spouse or subsequent generation, wills and trusts can protect against unnecessary taxes.
Irrevocable trust
You can set up and transfer your assets into an irrevocable trust. By doing so, you surrender ownership of the assets and thereby remove those assets from your taxable estate. Some examples include generation-skipping trusts, qualified personal residence trusts, grantor retained annuity trusts, charitable lead trusts, and charitable remainder trusts.
Prudent gifting
Many times, it’s better to give money or assets to your loved ones while you’re still around rather than wait until after you pass. By gifting during your lifetime, you’ll remove both the present value and any potential future growth of the transferred assets from your taxable estate. This can help successor generations now while reducing taxes later.
Life insurance
Buying the right amount of life insurance is crucial for restoring economic loss in the event of a worst-case scenario. Life insurance payouts can provide liquidity to pay for taxes and where family assets are concentrated in non-liquid investments, such as real estate or businesses.
We’ll work with your qualified tax professional to ensure that your investment plan and your retirement plan are aligned with the best long-term tax planning strategies. If you don’t have a qualified tax professional, we’re happy to send you a referral.
If you’re ready to discover your tax planning opportunities, please fill out the form below and we’ll get back to you shortly. We look forward to hearing from you.
Is your tax liability as low as it could be?
Let’s talk about how you can save on taxes today!
Book a complimentary retirement strategy session
Distributions and inflation can eat away at investment returns.
That’s why positive total returns aren’t the only thing we consider when building your diversified portfolio—we also make sure your investments keep pace with inflation.
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