"You need to be looking ahead to see what can be done today to save you money in taxes tomorrow."
When it comes to financial and retirement planning, taxes play a huge part. Every extra dollar saved is an extra dollar that you can spend. Save $1,000? You get an extra week in Florida avoiding the snow. Or maybe an extra dinner or two out every month.
What’s worse is that many people overpay their taxes every year. They just don’t know the ins and outs of the tax code enough to help themselves.
What Your CPA Can Do For You?
Sadly, their accountants aren’t much help either. A tax accountant typically looks at your tax information for last year to determine what can legally be done to reduce your tax liability. His focus is mostly looking for additional deductions to reduce your taxes.
He almost never looks at this year to see what lifestyle changes can be made to correct tax problems that crop up year after year. In fact, there are numerous ways to reduce your taxes without ever increasing your deductions.
For instance, let’s say that you have an extra $5,000 in interest income annually and you never spend that money. You live off your wages or pension and Social Security income. Year in and year out, you earn that $5,000 of reinvested interest and pay taxes on it.
Save Money By Looking Into the Future!
What if you could continue receiving the interest, but make half of it tax-free or tax-deferred? Assuming a nominal federal bracket of 25% and a state tax of 5%, sheltering half of the income would yield you an extra $750 per year!
Boom! Just like that you got an extra $750 that Uncle was formerly taking from you. And if you got REAL aggressive and sheltered 80% of that money, you could cut your taxes by $1,200 annually!
Most of the individuals and accountants I’ve encountered would look at that $5,000 of interest income and pat themselves on the back for being so financially savvy as to have an extra $5,000 per year in income. They’d never look at the $750 or $1,200 they were losing. And in order to truly save money on your taxes, you need more than an accountant with a sharp pencil or the latest-and-greatest software program. You need to be looking ahead to see what can be done today to save you money in taxes tomorrow.
The concepts and challenges can be complex. Each person’s tax situation is different. But the issues that you might face could include topics such as:
- The effectiveness of a Roth IRA (or even Roth 401(k)) contribution.
- Avoiding the 20% Mandatory Withholding On Retirement Plan withdrawals.
- Taxability of Social Security Income.
- Avoiding the 10% Penalty Tax for IRA withdrawals prior to age 59½.
- Capital gains versus IRA withdrawals.
A comprehensive tax plan will address these issues and others that may relate to your unique situation.
For more information regarding tax planning, be sure to contact us today.