-Article by Larry Holmes CPA. USC - Master of Business Taxation.
Tax Planning
You’ve probably heard of it…but what is Tax Planning?
Simply put, Tax Planning is going through financials to make sure all elements work together in the most tax-efficient manner possible. When done right, tax liability is greatly reduced.
Tax Planning takes everything into account: income size and timing, purchases and planning of expenditures. Investments and retirement plans are made to sync with tax filing status, deductions and retirement; creating the best possible tax outcome.
Tax Planning
Retirement Planning, IRAs and 401(k)s
One of the most important parts of Tax Planning is the retirement plan. Using a traditional IRA can reduce gross income boosting financial health. 401(k) plans are used by larger companies that have many employees. Employees can set aside chunks of their income directly into the company’s 401(k) plan and reduce taxable gross income.
As an example, those under 50 can contribute up to $18,500 of their income to a 401(k). Those over 50, can contribute up to $24,500. So a 55-year-old man making 50k a year could contribute $24,500 to his 401(k) and reduce his taxable income to $25,500.
Tax Gain-Loss Harvesting
Tax gain-loss harvesting is a form of Tax Planning where investments are leveraged. When a portfolio has losses, these can be used to offset overall capital gains. This is not a new concept, but it has gained greater popularity and media coverage in recent years. Basically, tax-loss harvesting is a tax planning strategy in which investment assets are sold at a loss in order to reduce yearly tax liability. This technique can be extremely complicated when attempted manually. It is usually done by computers and tailored accounting software used by brokerage firms and investment platforms.
Don’t try to do it on your own. Contact a professional.
Get a good financial advisor
When it comes to Tax Planning (I can’t stress this point enough) you need a real Tax Professional. Don’t go cut-rate to try and save a few dollars, you will pay for it in the long run. I have seen countless victims of bad tax planning. My team and I have had to course correct the financial direction of several good people and companies who, to no fault of their own, screwed up their tax planning in disastrous ways.
Moral of the story…get a good accountant to help you with Tax Planning.
-Article by Larry Holmes CPA. USC - Master of Business Taxation.
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