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Tax Planning For Now & Into The Future

As 2023 comes to a close, it’s the perfect time to think about tax planning and tax planning strategies. Here are some tips:

Separate Your Personal Finances From Your Business Finances

It’s wise to separate your personal and professional accounts for numerous reasons, including the ability to potentially take advantage of tax brackets. Individual income tax is progressive, starting low and getting higher. If you’re “sharing buckets” personally and professionally, the brackets can increase quickly. Also, consider leveraging professional pension plans. While IRA or 401K accounts may limit your personal contributions, you may be able to contribute significantly more through a professional pension plan.

Be Proactive, Not Reactive

When you’re acting proactively, you may be able to leverage more opportunities. For example, if you own a business, you can make tax deductions on your home office. Also, proactive tax management around your investment portfolio can add 1% to your average rate of return, which can be significant.

Be Flexible

Many people load up on tax deferred opportunities — like 401Ks — but this isn’t necessarily the right move for everyone. If you’re young and new to the workforce, you might hear that you should contribute as much as you can to a 401K. But you might need to save money for a house, and putting money into a 401K isn’t the best way to do that. Also, if you expect to double or triple your income in the next five years, understand that your current bracket is probably as low as it will ever be in your lifetime. If makes more sense to defer income when you’re in a higher tax bracket. Instead of automatically putting money into a 401K, focus on establishing good savings habits, putting your after-tax money where it makes the most sense to build the capital that you’ll need. Ideally, save 20% of your income. It may make sense to put a percentage of that into a 401K and put the rest elsewhere.

Act Now.

Before the end of the year, capitalize on best practice tax planning strategies and take advantage of everything available to you. For example, if your employer offers 401K matching, capture all the match money possible. Look at your investment portfolios and harvest gains against losses. In 2023, four of five tech stocks really drove the market. If you don’t want to pay capital gains taxes on these wins, sell stocks that might have some losses to use those losses against the gains. If you’re running a business and you have cash flow available, pre-pay expenses and set up a pension plan. The wisest actions depend on each individual’s specific circumstances, so consult with a financial professional to determine the most strategic moves for you.

Consider Any Changes In Your Circumstances.

This could include the loss of a job. If you’re unemployed as you approach retirement, even if you took money out of your IRA, you’ll be in a low tax bracket because you don’t have steady income from a job. If you deferred money into an IRA or 401K when your tax bracket was 25%, and then you lost your job, you’ll have a lower tax bracket and can leverage some other tax strategies.

Work With A Professional That You Like And Trust

Some people find the tax process intimidating. It can be helpful to work with a professional with experience in this area and take advantage of their knowledge! A professional can help you take advantage of every opportunity to maximize your deductions and returns. For instance, if your C corporation tax rate is lower than your personal tax rate, the professional can determine whether you can realize income from your C corporation. Also, if you own a business and you can put children on your payroll — like having them model in your ads — you can pay them and their tax rate will be lower than yours. This can be a good way to save for their future. The Guyton/Forge team will work collaboratively with your accountant, CPA, etc. to provide additional guidance around tax planning.

Guardian, its subsidiaries, agents and employees do not provide tax, legal, or accounting advice. Consult your tax, legal, or accounting professional regarding your individual situation.



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