Tax savings strategies can help you keep more of what you have earned. There are many types of strategies that could apply to your personal situation and help you protect and grow your wealth.
This guide by your Oakwell Private Wealth Management team provides a brief overview of three tax savings strategies you can start using for this year and beyond. Please consult with your CPA on what is right for your specific circumstances.
Invest in the right retirement vehicles
Investing in your retirement is beneficial both now and in the future. When you put money into tax-deferred retirement accounts, you lower your taxable income. That money then gets invested, tax-deferred, from whenever you contributed until you take money out.
It can be challenging to choose the right retirement vehicle for your situation. Each option has its own benefits, both tax-related and otherwise. If you need help understanding which retirement vehicle might be right for you, reach out to your CPA or Oakwell experts for guidance.
You should know that contributions to most IRAs, including Roth IRAs, must be put in by the 2022 tax deadline. SEP IRA and profit sharing and cash balance contributions can be submitted later if you file a tax return with an extension. However, all employee contributions need to be made before the end of the actual tax year.
Consider changing business entity types
Changing business entity types could improve your tax burden. For example, if you have an LLC generating income, there may be benefits to converting it to an S corporation. If you have multiple partners or shareholders, consider if a partnership structure makes more sense for you.
Of course, you will have to pay some taxes regardless of which business entity type you choose. However, there may be value in changing your corporate structure to suit your personal situation.
Another business-related tax strategy involves planning your business deductions. For example, you may reach the end of one tax year and realize you need to purchase new equipment. Consider and compare your projected income for that year and the next one. This step will help you decide when to purchase the equipment and take the deduction for that expense.
Engage in tax-smart philanthropy
Charitable giving can be a tax-effective strategy, especially if you have experienced or expect to experience any potential taxable events. These events can include rebalancing your investments, converting your Roth IRA, income changes, withdrawing from retirement accounts, and more. Here are a few ways to be tax-smart as you give back:
- Donate appreciated non-cash assets instead of cash. This strategy can help eliminate the capital gains tax typically incurred by selling or rebalancing assets before donating.
- Combine two years of contributions into one year if your itemized deductions for one year are slightly below the standard deduction level.
- If you are over the age of 70.5, make Qualified Charitable Distributions to reduce your IRA balance and potentially reduce future tax liabilities.
- Establish a charitable remainder trust, a charitable lead trust, or a donor-advised fund account. These strategies can be complicated, and their benefits may depend heavily on your specific situation, so ensure you consult with your tax or legal advisors before taking action.
Philanthropic donations have risen to historic levels in recent years. Talk to your CPA about whether these charitable deductions and strategies could help offset some tax liabilities on any potential taxable events you might experience.
Let us help you keep more of what you have earned by coordinating with tax professionals and wrapping a complete financial strategy around you to protect and grow your wealth. Contact your Oakwell team to learn more about how we can root your financial success in our collective knowledge.