Tax Strategies

Start tax planning for next year now

With the end of tax season just behind us, many are wondering how in the world they ended up owing Uncle Sam so much in taxes! The common response overhead of “It doesn’t feel like I made that much” makes writing that check to the government that much more painful! Fortunately, there are some things you can do today and throughout the year to plan for next year’s inevitable tax time.

Increase contributions (qualified plans, HSAs, 529s)

Contributions into employer qualified retirement plans, such as a 401(k) or 403(b), and Individual Retirement Accounts (Traditional IRA, SEP IRA), as well as Health Savings Accounts are deductible from earned income dollar for dollar (up to certain income limits in the case of IRAs). For those striving to preserve wealth through an estate, contributions to 529 College Savings plan are deductible from estate tax through the gift tax exclusion (currently $14,000 per donor).

Charitable giving

Donating to a qualified charitable organization can reduce your taxable income, dollar for dollar, up to certain limits. Examples of qualified charitable organizations are churches, tax exempt educational organizations, tax exempt hospitals, and certain private foundations.

Tax loss harvesting

This strategy can help investors in taxable accounts off set both long term and short term capital gains, as well as potentially reduce ordinary income by up to $3,000. Essentially, investment positions that have lost value are sold to offset the gains in other investment positions, or, as stated previously, to be used to reduce ordinary income. It is important to note that this strategy should not be used if it undermines a long-term investing strategy. Also important to note is that the same, or a substantially identical investment, cannot be purchased within 30 days of the sale.

Tax efficient investments and accounts

Taxes can take a considerable chunk and leave one with less of a return than expected. Options, such as tax-managed mutual funds or investing in exchange traded funds, can boost overall returns by minimizing taxes. Also part of this strategy is asset location: placing different types of investments in different types of accounts depending on their tax implications. For example, since interest income received on bond or bond mutual funds is counted as ordinary income, holding bonds in tax deferred accounts, like and IRA, can reduce one’s reported ordinary income, and thus, lower one’s taxes.

Donations in kind

If you’ve been giving cash, consider giving appreciated securities instead. You can deduct the market value of the securities at the time of donation from current income, and legally avoid the capital gains tax that would be due if you sold the stock and realized the gain instead.

All of the above strategies can potentially decrease your tax liability, but, as with any financial strategy, make sure to talk with your financial planner before making a move. Here at LJCooper, tax planning and tax strategies are just a part of our overall, holistic approach to financial planning. If you would like to see how we can add value to your current financial plan, give us a call. Tax services are offered through LJCooper Tax Strategies. LJCooper Wealth Advisors and DFPG Investments do not provide tax advice.

Categories: Tax Strategies

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Aaron Henderson