Tax Planning

Couple sitting on couch and reviewing their taxes on a laptop

Are you planning ahead for your taxes to reduce your tax burden?

Taxes can be expensive, but there are strategies you can use to reduce your overall tax burden and avoid surprises come tax time. Ideally, you want to be as close to owing nothing (with no refund) as possible. As part of the financial planning process, your advisor will review your taxes from the previous year to identify strategies you can implement, such as bunching strategies, contributing to tax-qualified accounts, maximizing tax credits, or implementing Roth conversions.

Your advisor can help you plan ahead for your taxes by:

Working with you to optimize your taxes annually and following life events

Did you get a new job, get married, take out a student loan, buy a house, receive a raise, or have a child? These are examples of major life events that can impact not only your financial plan, but your taxes as well. When you work with your advisor to update your financial plan following these events or as a part of your annual review, they will also work with you to optimize your taxes. This could be as simple as updating your withholding or involve more complex strategies such as tax bracket management.

Staying on top of tax policy changes

Our advisors closely monitor tax policies and how they can affect your taxes. By understanding what tax policy changes may be coming, we can work with you to proactively strategize for the future.

Helping you plan for the tax impact of financial decisions

Financial decisions such as selling investments, exercising stock options, and donating to charity can affect your taxes. Before making decisions with tax implications, work with your advisor to understand how to minimize any negative impact or take advantage of tax benefits. For example, when giving to charity, you may want to consider bunching gifts with other qualified deductions to maximize the benefit from the standard deduction one year, followed by itemized deductions the next.

Common Questions About Tax Planning:

I am worried about receiving a large tax bill (or refund), what should I do?

It is never fun to receive a large and unexpected tax bill at tax time. In order to avoid a large tax bill, or even a large refund, you need to review your W-4 form following any changes (marriage, salary, children, etc.) to ensure the correct amount continues to be withheld from your paycheck. This can prevent underpayment, which results in a tax bill, or overpayment, leading to a refund. Your advisor can help you evaluate your current withholding and recommend adjustments to ensure your tax payments are accurate, helping you avoid surprises and allowing you to maintain better financial stability throughout the year.

What are the tax implications of selling investments?

The tax implications of selling investments depend on the type of account the investments were held within. For example, in a brokerage account, the holding period and your income level play significant roles. Investments held for more than a year are taxed at long-term capital gains rates, which are generally lower than short-term rates for assets held less than a year. If your income exceeds certain thresholds, you might also be subject to the net investment income tax. Conversely, selling investments at a loss can offset other gains and potentially reduce your taxable income. Your advisor can work with you to understand the tax impact when selling investments and help you strategize to minimize any negative consequences.

I received a financial gift from a family member, is it taxable?

Generally, if you receive a financial gift from a friend or family member (not a business or as a prize), you are not responsible for any associated taxes. The person giving the gift may be subject to a gift tax, but there are annual and lifetime exclusions that often prevent the need for paying gift taxes. If a gift exceeds the annual limit, the giver may need to file a gift tax return, but it doesn’t necessarily mean they will owe taxes.