Most of us have one or two relatives who we keep avoiding during family reunions. That weird relative that you know you should talk to, but ignore as much as possible until it’s inevitable during those once a year family get-togethers where everyone brings their children, pets, and other surprise guests. Reasons for avoidance may include their embarrassing habits, inappropriate questions or even just their silly manners. Just like those reunions, we have that one time a year when we need to face it and do our taxes.
Many believe that family is an obligation but the truth is it is also a gift. Relating this to taxes, we may not witness it directly but it comes with benefits too. In particular, business owners and high net worth individuals benefit from tax planning, along with wealth management, the most. It helps that select group of individuals obtain better credit ratings, good investor value, helps being socially responsible and contributes to the overall good of the country of residence. Read more about the wealth management to-do list for business owners here.
Tax management and planning can be stressful. Tax related decisions can impact your bottom line significantly. Instead of planning it throughout the year, many people tend to procrastinate and leave it to the last minute. Worry no more, below is a tax planning checklist we’ve prepared just for you to get you going for 2018
1. Pay More Mortgage Interest Upfront
Having your own home can have a few nice tax benefits. Believe it or not, mortgage interest is one of your favorite relatives. It is one of the major favorite deductions personal taxpayers can utilize. Mortgage interest and any amount you pay on purchase or refinancing is tax deductible. You can claim a boat, a mobile home, or a condominium as a home, or a second home. When these properties are used as residential homes, mortgage interest on them can be tax deductible. Though there are requirements and restrictions to qualify for these, a tax and financial planner can guide you and get that deduction in your taxable income.
2. Switch to a High Deductible Health Plan
Switching to a high deductible health plan and contributing to your Health Savings Account (HSA) has a few tax perks as well. The money you contribute not only reduces your taxable income but also provides you tax savings. When you take out the money for medical expenses or even in retirement, it comes out tax-free! Like a 401(k) retirement account, the HSA is yours to keep. What’s better is the investments in the HSA grow tax-free. When you don’t use your money in your HSA, you can have it saved up for retirement. Don’t want to use it in retirement? You can also pass it on to your heirs.
3. Utilizing Your Pre-Tax Retirement Accounts
When you are planning for retirement, tax planning strategies are a must from the beginning. Your pre-tax retirement accounts are some of your nicest relatives. These include IRAs, 401k, and SEP IRAs to name a few. The idea behind these pre-tax contributions is that you don’t have to pay taxes when you deposit money into these accounts. Money allocated in these tax-deferred accounts allows you to realize immediate tax deductions and can reduce your taxable income. However, it is important to note that future withdrawals from the account would be taxed.
4. Consider Starting a Donor Advised Fund
If you want to do more philanthropic giving but don't know which organizations to find right now, consider starting a donor advised fund (DAF). A DAF is a fund within a charitable organization that allows donors to donate and contribute, receive immediate tax advantages and recommend grants over time. This is one of the best ways for you, as a taxpayer and as a donor, to hold onto your hard-earned money. You can receive an immediate income tax deduction in the year you contribute to the fund without having to choose a specific charity. Donations are made to organizations you specify in future years. It also provides several other benefits, like eliminating capital gains taxes on appreciated assets and your donation can grow tax-free.
5. Track Fees Paid For Tax Advice and Planning
When you have a fairly complex income tax situation, paying a relatively small fee for professional tax advice and planning can potentially provide many long term benefits. Not only do these services reduce stress, but they can also give you options and widen your opportunities regarding your tax strategies throughout the year. While having a tax planner may help lower your taxes and increase your wealth, it is also not free. Furthermore, trust is on the table regarding your hard-earned money. It is necessary to track your paid fees for tax advice to realize if you really are able to save with a tax planner or if you are just wasting your money while helping somebody else’s interests.
A Couple More Tax Planning Advantages
Tax planning is the art of managing your wealth in ways that defer and minimize taxes. Becoming successful and achieving financial freedom has its fair share of costs. Taxes might cut into a big part of your accumulated wealth. Effective tax planning strategies are those that will help you reduce your taxes by taking advantage of beneficial tax-law provisions, increasing tax deductions and tax credits, and generally utilizing all applicable breaks available under the Internal Revenue Code (IRC).
The list we’ve provided here above is a good start. With these benefits, you can have more money to save and spend on what matters to you most. Financial and tax planning are closely related to each other. Duties of a Financial Planner include developing strategies that will help you achieve your desired financial goals according to your needs and best interests. Together with effective tax planning, you can achieve your wealth’s utmost potential.
With your team at Destiny Capital, we tailor our services to the highest level and help you make the best decisions regarding your wealth and many other circumstances. Learn more about tax planning by contacting us!