There’s a big difference between tax planning and tax preparation, even though the terms are often used interchangeably. h Tax preparation is short-term, but tax planning is a strategic, long-term approach to the payment of taxes. It’s something to think about all year long, even after April 16th has passed. Below are a few tips to help minimize stress and save money.
Give Tactically
Many people go into “giving mode” during the holidays. However, many of the most reputable charities’ fiscal years conclude in June. For this reason, consider spreading your donations throughout the year. Cash is not your only option to give. Other donations may include:
• Stocks that have increased in value
• Qualified charitable distributions from IRAs
• Naming the charity as an IRA beneficiary
Since 2017’s TCJA (Tax Cuts and Jobs Act) doubled the IRS’ standard deduction, there’s a significant likelihood that you aree not filing an itemized return. Therefore, you will not easily see the benefits of charitable deductions year after year. (The workaround: a ‘bundling’ strategy that ramps up your charitable donations.)—-Don’t know what this means.
Diversify
Are you a resident of Peachtree Corners? A financial advisor in Peachtree Corners will likely encourage clients to diversify their investments, and it may be wise to use a similar method when paying taxes on those investments. Different retirement account types are structured differently for tax purposes. For instance:
• SEP IRAs, IRAs, conventional 401(k)s and solo 401(k)s: you’ll get tax breaks on every contribution, but you have tol pay income tax on each withdrawal in retirement.
• Roth IRAs and 401(k)s: Contributions to these accounts are made with post-tax funds, and withdrawals are not taxed if you’re 59 ½ and have had the account for five years or more.
• Taxable investment accounts: Any money put into such an account is post-tax, and earnings are under the capital gains tax.
It’s impossible to predict future tax rate fluctuations. However, by spreading your tax burden, working with a financial advisor in Peachtree Corners and planning ahead, you’re more likely to be covered.
In Closing
As much as you may not want to hear it, taxes are not a December-April subject. With year-round preemptive planning as part of a wider financial strategy, you’ll be on the path to a better retirement.
