Planning now can save money for later

Unless you filed for an extension, or live in Maine or Massachusetts, congratulations! The 2023 tax season is over! Now would be a great time to review what you’ve learned from last year to improve your filing and tax efficiency for next year. For example, last month the market pulled back on news that the Fed would hold rates as is for fear of rising inflation. This announcement led to a general pullback in market returns which in turn created an opportunity to harvest losses. In short, Tax Loss Harvesting is the practice of selling winning positions against losing positions to create deductions.

Below are a few other tips you may want to consider as we move closer to this year’s half-way point:

  • Look at fully funding employer-sponsored plans and/or tax-deductible IRAs. Maximizing these contributions may lower your tax bracket. Small business owners with no existing employer-sponsored retirement plan should consider establishing one and taking advantage of generous tax credits introduced by recent legislation to help small business owners with some of the startup cost for retirement programs.
  • Review Roth retirement planning options. Converting existing pre-tax assets to a Roth IRA, funding a Roth IRA or, if it is available, use Roth salary deferral contributions through your 401(k), 403(b) or 457(b) plan now. These techniques may provide more after-tax cash flow during retirement. Recall, though, once you make a Roth conversion, it cannot be undone.
  • Think about the location of your assets. Perhaps mutual fund investments are more pragmatic in a tax-deferred account than a taxable account for your situation.
  • For higher income earners, review your withholdings and your passive investments and make sure you address any potential Affordable Care Act Taxes or the cap on your state and local tax deductions.

Bottom line, taxes are one of the two guaranteed things in life, so you must continue to deal with them.

Always happy to go over your 2023 taxes to generate ideas.