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Tax Strategies

Tax Strategies

One thing that is frequently overlooked when it comes to managing your finances is quality tax planning. It is crucial to utilize tax strategies to make the most out of your hard-earned money. No one wants to waste their energy working hard just to watch it all go to taxes. Put your wealth to work for you with tax strategies in Concord, MA.

Asset Allocation

Asset allocation is an investment strategy that aims to balance risk and reward through allocating assets in an investment portfolio in ways that align with an individual’s goals and risk tolerance. Often, diversifying assets in the portfolio is a strategy included in the asset allocation model. Asset allocation is truly dependent on the individual, their age, and their financial goals.

Roth Conversion

A Roth IRA conversion involves transferring retirement funds from a traditional IRA or 401(k) into a Roth account. A Roth account is tax-exempt, and a traditional account is tax-deferred; therefore, the deferred income taxes must be paid at the time of conversion on the converted funds. There is no early withdrawal penalty on a Roth conversion. This strategy can make sense if the individual feels it is better to pay taxes at their present tax bracket rather than later, especially if they will be at a higher tax bracket nearing retirement.

Required Minimum Distributions

Many retirement funds cannot be left in retirement accounts forever. Generally, you will be required to take withdrawals from your IRA, SIMPLE IRA, SEP IRA, or retirement plan account once you reach age 70 ½. Unless your 70th birthday was July 1, 2019, or later, you may not have to take the required minimum distributions until age 72 due to the SECURE Act.[1] Roth IRAs do not have required minimum distributions. Withdrawals will be required on a Roth account, however, after the death of the account owner. Required minimum distributions are the minimum amount you must withdraw from your account(s) every year.

Charitable Gifting, Donor Advised Funds (DAFs)

Charitable gifting is one way to offset taxes and practice philanthropy at the same time. One way to maximize deductions is to donate assets like stocks and mutual funds directly to the charity rather than selling them and donating the cash. If you have owned the securities for longer than a year, you can generally claim a tax deduction in the amount of the entire fair market value, and both you and the charity do not have to pay taxes on the gain. Charitable gifting can combine cash and long-term appreciated securities to potentially create a larger deduction than contributing securities by themselves. Another charitable gifting strategy is to consider a donor-advised fund or DAF for charitable gifting.

Whether made up of cash equivalents, stock, or other appreciated assets, a donor-advised fund is one way that is both efficient and simple. Donating to a donor-advised fund is a quick way to ensure you’re eligible for a tax deduction. It is much simpler than dealing with writing checks or transferring stock to multiple charities. You simply make a single donation to a donor-advised fund dedicated to a specific charitable account used for supporting charities that you are passionate about

Qualified Charitable Distribution

Usually, a qualified charitable distribution is considered a taxable distribution from an individual retirement account (exceptions include a SEP or SIMPLE IRA) owned by an individual who is 70 ½ or older. It must be paid directly to a qualified charity from the individual retirement account.

Tax Bracket Management

Tax bracket management is one way to boost after-tax returns. Whatever your investment objective is, growth or capital preservation, maximizing your after-tax return should be a primary component of your overall goal. A way to do so is to implement a strategy called tax bracket management. This strategy is used to reduce taxes on high-income years by paying taxes in your lower income years if you expect you will receive higher income in the future. With tax bracket management, you won’t be eliminating taxes on your income but instead deferring those taxes to a later time. It is essential to understand when and how the deferred income will be taxed. Most importantly, remember that when you are implementing any tax strategies, make sure that you are working with a trusted advisor to maximize effectiveness and avoid making costly mistakes. Our tax strategies begin with analyzing your finance, assets, and liabilities to maximize tax breaks and minimize liabilities. Get in touch today!