Why Tax Planning Is So Important
Two things are certain,
death and taxes!
Whether we like it or not, we all know that according to one of our most esteemed founding fathers, Benjamin Franklin, only two things are certain, death and taxes! One thing we also know is tax planning is VITAL to creating a flow of income in retirement that is FREE from, or at least minimizes, tax liabilities when you are living on a retirement income. This kind of planning is different than preparing your income tax returns. When you or your accountant prepare your income taxes, you are looking backwards. What happened last year? What deductions can I take? Did I contribute enough to my IRA or 401(k) plan? In other words, you are looking at tax preparation through a rear-view mirror. Tax planning requires something different. It requires forward looking thinking and utilizing tax planning strategies that will help to minimize or even eliminate income taxes in the future, especially in retirement.
Get Me to Zero Strategy
Is a tax-free retirement income possible? For many Americans, the answer is a resounding YES! The reason many people end up paying taxes in retirement is that they failed to plan with a goal of ZERO income taxes while they were working. There are some excellent books available about this unique yet, popular tax planning strategy. This may not work for some who have taxable pension income, but for the majority of Americans who no longer have access to a defined benefit monthly pension, it is the most important strategy to learn about while you are still working. We call it our Get Me To Zero strategy.
Click Here to learn more about this unique strategy and to schedule your discovery meeting.
Tax Strategies vs. Tax Deductions
Tax time is usually stressful for almost everyone. It requires you to gather up all of your IRS forms, employer tax reporting, receipts, canceled checks, charitable donation receipts, and so forth. Once all of that is done, we file our return hoping for a refund. If we get a bigger refund than we expected, we’re happy! If we owe more money, not so much. When we are trying to reduce our tax liability for our current income, we often make decisions that actually INCREASE our future tax liability!
For example (and this is different depending upon where you live), if you are raising a family, you have deductions for dependents, maybe child tax credits, maybe mortgage interest, maybe some child-care expense deductions, and so forth. During this time, you are trying to save for retirement and possibly plan college expenses, as well. It’s a real juggling act for almost everyone, and typically the goal in these years is to defer income by making elective deferrals into our retirement plans at work, or by funding tax deductible IRA accounts. That may help us now, but at some point, taxes will have to be paid on the income we deferred. The problem is, we usually defer income taxes when we have the most deductions, and then we take that income in retirement when we have little to no deductions! A tax strategy helps you to evaluate the impact of doing this by finding ways to reduce or eliminate taxes in the future.
Is Charitable Giving Worth it?
Whether or not you have a passion for a specific charity, charitable giving has long been considered a win-win situation with regard to tax planning. We’re not just talking about giving a little more to your church or favorite charity, but rather creating a strategy using charitable giving that creates a wonderful tax deduction for you, does good for your community, and even allows you to benefit in some cases from income created by your charitable gift! There are many ways to do this and every situation must be carefully evaluated to see if you are a good candidate to explore charitable giving as a tax strategy. Many of these strategies involve ways to avoid the capital gains tax on highly appreciated assets, such as investment real estate, stock portfolios with a low-cost basis, and other investments that may carry a hefty tax price tag when you sell them. We can help you to explore some of these techniques and you may be surprised that you can benefit from your charitable giving with tax savings and retirement income for you!
Tax or Legal Advice
Vital Tax Solutions, Inc., does not offer tax planning or legal services, but may provide references to accounting, tax services, or legal providers. They may also work with your attorney or independent tax or legal advisor.
All written content is for information purposes only. It is not intended to provide any tax or legal advice or provide the basis for any financial decisions. Please consult a qualified professional for assistance with any tax or legal issue to review the implications.