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If you feel like you may be paying more than your fair share of taxes, your feelings aren’t entirely wrong. Many Americans pay too much without even realizing it. Not only have markets hovered around the potential of a recessions, but inflation hit historic highs in 2022 – after a record-high 2021.1
Despite these headwinds, you know you must pay your taxes. However, could there be wealth-building opportunities “hidden” inside your taxes? Yes! And all you need to know is where to start digging.
Our 5 Potential Opportunities Guide is focused on looking at ways to save for high-income earners who want to keep more money in their pockets if they can.
As the cost of everything from groceries to gas goes up, many Americans are feeling the pressure of rising inflation. But there’s good news. You may be able to profit from rising inflation.
The Social Security Administration is increasing cost of living adjustment (COLA) payments by 8.7% in 2023 to move with current inflation.2
The IRS has increased the amount of the standard deduction and expanded the tax brackets. This means you could potentially pay the same tax rate even if you make more money this year. The income for exemption from Alternative Minimum Tax is higher and phases out at a higher income too. 3
The IRS has also increased the amount you can contribute to your retirement plans, as well as the income phase-out for Roth IRAs.4
Are you ready to take advantage of these inflation-adjusted benefits?
Key questions to ask include:
Are you ready to take advantage of these inflation-adjusted benefits?
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Depending on your income, the tax deduction for your retirement contributions could be extremely valuable in helping you lower your taxes every year. But this money is fully taxable on withdrawal, so what happens when you start taking it out after retirement?
Given all the uncertainty, 2023 could be a great year for converting some of your pretax retirement money in a 401(k) or IRA into a Roth. Conversion makes sense when:
If your 401(k) or similar employer retirement plan allows, you could even be eligible for a “backdoor Roth” where you add after-tax money to your pretax plan and immediately convert it to a Roth. Between your salary deferrals, employer match, catch-up contributions, and after-tax money, you’re allowed to contribute up to $66,000.5
Are you ready to take advantage of these inflation-adjusted benefits?
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It’s tax season outside. Tax deductions that wealthy people have relied on for years such as state and local tax deductions, including mortgage interest and charitable deductions, were seriously cut back through the TCJA of 2017.
Depending on your financial and portfolio situation, it might make sense to accelerate your mortgage payments. You might even consider paying off more of your mortgage and retiring the debt now that the tax deduction for mortgage interest is capped.
Now that the standard deduction is higher for 2023 ($27,700 if you’re married and filing jointly), you’ll need to be thoughtful about deductions that you can bundle to be able to itemize, like:4
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Some types of assets perform better in one type of account over another. Investing your assets with purpose can potentially help you lower your tax bill.
Here are some examples of what this tax-saving strategy can look like:
It’s critical to extract as many tax deferral opportunities as possible from your investments before you file AND before lawmakers eliminate the tax advantages of each strategy.
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These tips are advanced and complex techniques that could help you wring every opportunity out of this tax year, but you need to be careful and coordinate your tax strategies in the context of your overall financial plan.
It is highly recommended that all of these tax opportunities and moves are addressed with a qualified financial professional before taking action. It’s important to keep in mind both the parameters of the opportunity, as well as the laws surrounding them, as well as how each pertains to your specific situation.
Here are some examples of what this tax-saving strategy can look like:
If your portfolio strategy supports it, you may want to consider selling assets that have gained value to lock in your gains.
If you have assets in your portfolio that no longer fit your goals, selling them and realizing the losses will allow you to offset some or all of your gains. Details matter a lot here, so be sure to get advice on matching short– and long-term gains and losses.
Roth conversions reduce the amount of Traditional money that you’re forced to take RMDs on, plus the money comes out tax-free on withdrawal as long as you play by the rules.
Take advantage of current low capital gains tax rates, especially with things like employer stock options.
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Many of these tax strategies need to be completed before you file your taxes. Moreover, legally decreasing your tax load requires a strategic, well-executed tax plan, since there are a lot of moving parts. This may be a good time to touch base with your financial advisor to see where opportunities to potentially, and legally, decrease your tax load may exist.
Investment advisory services are offered through Trek Financial, LLC., an SEC Registered Investment Adviser. Information presented is for educational purposes only. It should not be considered specific investment advice, does not take into consideration your specific situation, and does not intend to make an offer or solicitation for the sale or purchase of any securities or investment strategies. Investments involve risk and are not guaranteed. Be sure to consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. © Copyright 2021 Trek Financial. All Rights Reserved.