Your Tax Strategy: Time Matters
Tax Planning Saves Money
Saving on your taxes starts with planning, and the sooner you begin, the better. By aligning your tax strategies with your financial strategies, the money you save from taxation can help fund your future. Minimizing your taxes and maximizing your saving opportunities involves planning for both the short- and long-term.
Like your financial strategy, your tax strategy operates in two time frames—now and later. “Now” covers the 12 months of the current tax year. In the short term, a misstep of a month in selling an appreciated stock and paying the higher short-term capital gains tax versus the lower long-term rate could result in a significantly higher tax bill. “Later” covers long-range moves such as starting a tax-deferred savings plan (for instance, a 401(k) plan for your retirement).
Long-term planning opportunities may help you reduce your tax bill in the short term, as well as reach your future goals, such as funding a secure retirement or paying for an education. For example, if you contribute to a qualified employer-sponsored retirement plan, like a 401(k), your contributions are pre-tax, and earnings have the potential to grow on a tax-deferred basis. If you plan on sending your children to college, a 529 college savings plan allows your contributions to grow tax deferred, and withdrawals for qualified expenses are tax free.
Are You Subject to the AMT?
The alternative minimum tax (AMT) was originally created to prevent people with high incomes from paying little or no tax. To understand the AMT, think of it as a separate tax system with its own set of rates and rules for deductions that tend to be less generous than the regular Internal Revenue Service (IRS) rules. As a result, if you have multiple exemptions from dependents and deductions from such areas as interest-paying accounts, second mortgages, capital gains, and state and local taxes, you may be subject to the AMT.
Advance planning is the key to our Individual Tax and Accounting Services. When you reduce your tax liabilities you can achieve the best results. Our financial and tax professionals can help ensure your strategies keep pace with the latest changes in your life, as well as legislative reform on both the national and state levels.