Winning the Long Game: Tax Planning
We live in a world where we want everything instantly. Working out won't make you strong in one day. Going on one date doesn't mean you'll get married and be happy forever. Investing today doesn't make you’ll be financially free right now.
The same is true for tax planning. It's not a one-time thing that you do to save money on your taxes this year. It's an ongoing process that can help you save on taxes over the course of your life.
Tax planning is an investment in your future.
When you invest in a stock, you're not expecting to get rich quick. Investors know that it takes time for your investment to grow. The same is true for tax planning. The earlier you start planning, the better.
Here are a few way of how tax planning can save you money over the long term:
Choosing the right investment accounts: There are a variety of different investment accounts available, each with its own tax advantages. For example, traditional retirement accounts offer tax-deferred growth, while Roth retirement accounts offer tax-free growth and withdrawals. By choosing the right investment accounts, you can minimize your tax liability in both the short and long term.
Roth Conversions: Roth conversions could save you money over time by moving your retirement savings from a tax-deferred account to a tax-free account. This means that you will pay MORE taxes this year on the converted amount now, but you will not have to pay taxes on the earnings when you withdraw the money in retirement.
Tax-loss harvesting: Tax-loss harvesting is a strategy of selling investments that have lost value in order to offset capital gains. This can be done to reduce your tax liability in a given year. For example, if you have $10,000 in gains from selling a stock and $5,000 in losses from selling another stock, you can offset your gains with your losses. Tax-loss harvesting can be a complex strategy, so it is important to talk to a financial advisor before making any decisions.
Estate planning: Estate planning is the process of planning for the transfer of your assets after your death. By properly planning your estate, you can minimize the amount of estate taxes that your heirs will pay. This can save your family a significant amount of money.
Tax planning is not a one-size-fits-all approach. The best tax planning strategies for you will depend on your individual circumstances. However, any amount of tax planning is better than none.
Tax planning is an investment in your future. By starting to plan today, you can save money over the course of your life. If you're serious about saving money on your taxes, work with a financial advisor to develop a personalized tax planning strategy.
Helpful tips for winning the long game with tax planning:
Review your tax plan regularly. Your tax situation can change over time, so it's important to review your tax plan regularly to make sure that it is still meeting your needs.
Be patient. It takes time for tax planning to pay off. But if you are patient and disciplined, you can save money on taxes over the course of your life.
Author – Michael
This material is for general information only and is not intended to provide specific advice or recommendations for any individual. There is no assurance that the views or strategies discussed are suitable for all investors or will yield positive outcomes.
Contributions to a traditional IRA may be tax deductible in the contribution year, with current income tax due at withdrawal. Withdrawals prior to age 59 ½ may result in a 10% IRS penalty tax in addition to current income tax. The Roth IRA offers tax deferral on any earnings in the account. Withdrawals from the account may be tax free, as long as they are considered qualified. Limitations and restrictions may apply. Withdrawals prior to age 59 ½ or prior to the account being opened for 5 years, whichever is later, may result in a 10% IRS penalty tax. Future tax laws can change at any time and may impact the benefits of Roth IRAs. Their tax treatment may change.
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