Tax Planning Services
What Is Tax Planning?
Tax planning is the analysis of a financial situation or plan to ensure that all elements work together to allow you to pay the lowest taxes possible. A plan that minimizes how much you pay in taxes is referred to as tax efficient. Tax planning should be an essential part of an individual investor's financial plan. Reduction of tax liability and maximizing the ability to contribute to retirement plans are crucial for success.
Tax planning is the analysis of a financial situation or plan to ensure that all elements work together to allow you to pay the lowest taxes possible.
Considerations of tax planning include the timing of income, size, the timing of purchases, and planning for expenditures.
Tax planning strategies can include saving for retirement in an IRA or engaging in tax gain-loss harvesting.
Understanding Tax Planning
Tax planning covers several considerations. Considerations include timing of income, size, and timing of purchases, and planning for other expenditures. Also, the selection of investments and types of retirement plans must complement the tax filing status and deductions to create the best possible outcome.
Retirement Saving Strategies
Saving via a retirement plan is a popular way to efficiently reduce taxes. Contributing money to a traditional IRA can minimize gross income by the amount contributed. For 2022, if meeting all qualifications, a filer under age 50 can contribute a maximum of $6,000 to their IRA with an additional catch-up contribution of $1,000 if age 50 or older.1 That number rises to $6,500 in 2023, with the catch-up contribution holding steady at $1,000.2
For example, if a 52-year-old male with an annual income of $50,000 who made a $7,000 contribution to a traditional IRA has an adjusted gross income of $43,000, the $7,000 contribution would grow tax-deferred until retirement.3
There are several other retirement plans that an individual may use to help reduce tax liability. 401(k) plans are popular with larger companies that have many employees. Participants in the plan can defer income from their paycheck directly into the company’s 401(k) plan. The greatest difference is that the contribution limit dollar amount is much higher than that of an IRA.
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