Managing Your Taxes
Managing your taxes can be a powerful way to help you pursue your financial goals more quickly and with fewer consequences. When you minimize your tax liability, you can keep more of your money.
Start with your dreams and goals. Consider how paying less in taxes might help you strive towards them.
- Are you managing your taxes based on your dreams for the future?
- How should you use tax-advantaged accounts and investments?
- What strategies will help you manage timing of income and deductions?
- What preferred tax rates are you using (capital gains, dividends, etc.)?
Getting the Best Outcome for Your Income
There are several accepted techniques for reducing taxable income. Consider the following:
- Shift income to family members. If you own stock that earns large dividend income, you may choose to make a gift of the stock to your children to deflect your tax burden. Just beware of tax-free gift limits. You may also want to consider hiring relatives for the family business, or creating a family limited partnership.
- Deduction planning. Strategically schedule your eligible deductions. First, decide whether itemizing your deductions or taking the standard deduction lowers your taxes most. Then figure out if you'll need to lower your adjusted gross income (AGI) by deferring part of your income to next year.
- Investment tax planning. This strategy uses timing and smart investment choices while focusing on your after-tax return. For example, the interest on certain education or municipal bonds may be tax-exempt. Another option to consider: schedule your stock sales to minimize liability.
- Year-end planning. This strategy involves timing your income for lower tax rates, and claiming deductibles when you're in a higher tax bracket. If possible, ask your employer to pay you in January rather than December, to postpone your taxable income. Or schedule major dental or other elective medical procedures for the end of the year to take a medical expense deduction this year.
Monitor Your Taxes
Income tax planning requires your constant attention. As your goals and financial situation change, so will the strategies for managing your taxable income. A Provence Wealth financial advisor can help you keep your financial plan up to date with your current needs.
Neither Provence Wealth Management nor its representatives or affiliates may provide tax or legal advice. Consult with your tax advisor or attorney regarding specific issues.