W-2 Paid Employees

Many of the people we help are hardworking employees of a company who are putting aside earnings for their future. However, one common misunderstanding that we hear is that W-2 employees don't have many opportunities for tax planning. We believe otherwise! With careful planning, there are many ways to help lessen your tax burden which helps your hard-earned savings works smarter for you in the long run. We believe that W-2 employees can combine tax planning alongside their investments to help maximize their savings.

 

Here are some tax planning strategies we help implement for W-2 workers!

1.) Long-term Capital Gains

  • When you sell an investment, if you hold the investment for at least 1 year you may be able to pay a much lower tax-rate on your earnings.

2.) Tax-loss and Tax Gain Harvesting:

  • A losing investment can help offset taxes on a winning one – This can be extremely valuable! If you sell an investment for a gain, see if you can write it off by selling a losing position. You can re-buy the same investment after 30 days or immediately buy another security that is not identical.

3.) Roth Conversions

  • Roth conversions can be a great way for a W-2 employees to use tax brackets to their advantage when it fits into their plan!

4.) Tax-advantaged accounts:

  • You could contribute to a pre-tax or Roth 401k at work. You also should consider if a Roth IRA, or backdoor Roth IRA makes sense for you.

5.) Health Savings Accounts (HSA):

  • If you qualify for an HSA you should consider using it. You receive a tax deduction the year you contribute to the account, tax-deferred growth, and tax-free withdrawals if used for qualified medical expenses.

6.) Asset Location NOT just Allocation

  •  Asset Allocation is pivotal, but considering where you hold certain investments is extremely valuable.    

  • What type of investments should I own during retirement?

  •  What kind of investments should be held in certain accounts?

  •  Should I be invested aggressively or get more conservative in retirement?

  •  How much cash should I keep in retirement?

7.) Tax-efficient investments: 

  • It’s pivotal to consider what type of investments you hold in each specific account you have. Each type of investment is taxed in its own way, so it's important to understand how taxes apply to each one.

8.) Charitable Giving:

  • Consider bunching your charitable gifts together throughout years to receive a larger tax deduction. If you have appreciated investments, you can gift the investment directly so you won’t owe capital gains tax. If you’re over 70 ½ you could gift directly from an IRA account and not pay taxes. Many people also use Donor Advisor Funds to help with taxes on their gifts.

9.) 529 Accounts:

  • Hoping to help your children with K-12 or college schooling? A 529 account can be a helpful account to protect your investments from taxes for that goal. 

10.) Employer Stock Options:

  • If you have employer stock options these can be great for tax planning strategies.

 

Our team works hard to help educate and improve our client’s finances. We aim to add value to them. We hope some of these ideas can also be helpful to you! 

We don’t only help manage investment portfolios at an elite level, our team works hard to help educate and improve our client’s financial strategies.