10 Tax Planning Opportunities You Don’t Want to Miss, Ep #204

What if one of these ten tax tools could be the opportunity that you’ve been missing?

If you are looking to increase your wealth over your lifetime you’ll want to ensure that you have the best tax planning strategies in place for long-term success.

Paying more taxes now to lower your lifetime tax rate may seem unconventional, but if you are serious about building wealth, this could be the kind of strategy to use.

4 tax-saving opportunities for charitable giving

  • Bunch charitable gifting – If you are charitably inclined you may be like most people who stopped itemizing your charitable giving deductions when the tax code changed a few years back. Now the standard deduction bar is set so high that most don’t surpass it. One way to take advantage of your charitable gifting is to bunch a couple of years of charitable gifts together.
  • Use a donor-advised fund – Bunching charitable donations together can be done easily by using a donor-advised fund (DAF). The way the DAF works is by contributing one lump sum into the fund so that you can enjoy the tax benefits one particular year and then you can dole out the contributions over multiple years. Using a DAF is a fantastic way to take advantage of a windfall.
  • Gift highly appreciated stock – Another way to use a DAF is with highly appreciated stock. You can gift the shares directly to the DAF without selling the stock. This way you don’t have to report the gain as taxable income and everybody wins.
  • Take advantage of qualified charitable distributions – If you are over the age of 70.5 you can directly fund your charitable giving through your IRA by using qualified charitable distributions (QCD). This strategy allows for an above the line deduction and can help you meet your required minimum distributions (RMD).

Long-term financial planning is essential to lifetime tax planning success

  • Plan ahead – A large purchase could lead you into the next tax bracket unintentionally. If you have more control over your earnings, you can avoid going into a higher tax bracket by utilizing a home equity line of credit (HELOC) or taking distributions from an HSA or Roth IRA. Long-term tax bracket management is one way to help you understand when and how to make large purchases.
  • Take advantage of the hidden tax bubble – By maximizing Roth conversions before your Social Security payments go through, you can take advantage of your lower tax bracket and allow your Roth conversions to grow tax-free. It’s important to plan ahead to employ this strategy.
  • Employ tax loss harvestingTax loss harvesting is a tax-saving strategy where you intentionally take a loss by selling an investment, but you immediately reinvest in another non-identical holding. Be careful not to purchase the same security for 30 days to avoid the wash sale rule. This provides a tax benefit to offset the capital gains you earned in other areas.
  • Stay away from IRMAAMany people don’t realize that there are Medicare premium brackets. The premiums are based on their income 2 years prior to filing for Medicare. Most people pay the base rate, but if you had a large income event in the year the qualifying year, you may get bumped up the ladder. If this happens, then you have to pay an annual surtax called IRMAA. There are ways to avoid, including filling out an appeal based on specific life events. Your advisor should discuss with you.
  • Watch net investment income tax – Those in the $250,000+ income range are charged a portfolio construction surtax of 3.8%. Listen in to hear how a bit of portfolio planning can help you side-step this tax.
  • Take full advantage of your retirement account options – Retirement account options keep expanding. A good way to control income is through funding your 401k, 457, or 403b.

As life changes, your opportunities for tax savings change, which is why it is important to stay on top of these changes.

Outline of This Episode

  • [2:12] Bunching multiple years of charitable giving together can be tax efficient
  • [5:38] How to use highly appreciated stock as a gifting tool
  • [6:32] Using qualified charitable distributions
  • [10:22] Long-term financial planning is critical to long-term tax success
  • [13:19] How to take advantage of tax loss harvesting
  • [18:53] Use your retirement accounts

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