This white paper discusses tax planning from a federal estate and gift tax perspective for 2022 and many of the techniques discussed could reduce your overall income tax burden. *
In the white paper we discuss:
Updating your tax strategy now — before the current Tax Cuts and Jobs Act of 2017 (the “TCJA”) rules expire — could lower the amount of taxes you’ll pay for LIFE. Please contact us and we will share more details.
* You should consult your own tax, legal and financial advisers about your individual circumstances and
before engaging in any transaction. The ability of a taxpayer to make tax-free transfers is subject to a variety of limitations depending on the donor’s specific tax situation.
**Although the Tax Cuts and Jobs Act of 2017 (the “TCJA”) made significant changes to our tax code, the transfer tax system remained relatively unchanged. The most notable change in the TCJA was the doubling of the estate and gift tax exclusion amount and the generation skipping transfer (“GST”) tax exemption amount. The TCJA also made numerous changes that may impact certain family businesses and private foundations.
Prepared by: Focus Fiduciary Solutions, LLC (“FFS”). FFS is a corporate trustee and estate administration solution for Focus partner firms and their clients. BFSG is part of the Focus Financial Partners partnership.
Disclosure: BFSG does not make any representations or warranties as to the accuracy, timeliness, suitability, completeness, or relevance of any information prepared by any unaffiliated third party, whether linked to BFSG’s website or blog or incorporated herein and takes no responsibility for any such content. All such information is provided solely for convenience purposes only and all users thereof should be guided accordingly. Please see important disclosure information here.
By: Arash Navi, CFP®, CPA, Controller & Wealth Manager
Our goal is to help our clients build and grow their wealth and tax planning plays an important role in this process. We recommend that you mark your calendar to review your finances in the first week of October, annually. Take this time to review your income for the year from employment, businesses, investments, or any other sources. This will help you project your tax liability ahead of time and allow your financial advisor or tax accountant to find strategies to reduce your tax burden. Implementing this consistently and reducing your tax burden annually will have a compounding impact over the years and increase your retirement nest egg. Here are a few tax planning strategies to keep in mind:
IRAs and Retirement Plans
Take full advantage of tax-advantaged retirement accounts. By contributing to Traditional IRAs and employer-sponsored retirement plans such as 401(k) plans, you can reduce your taxable income and lower your taxes. For 2021, you can contribute up to $19,500 to a 401(k) plan ($26,000 if you’re age 50 or older) and up to $6,000 to a traditional IRA ($7,000 if you’re age 50 or older).
If you are in a lower tax bracket this year and expect your income tax rate to increase in the future, you may want to consider a Roth IRA conversion. You can convert all or part of your pre-tax retirement account into a Roth IRA and pay the taxes now at a lower rate. The funds in your Roth IRA will continue to grow tax free, and you will have more income flexibility in retirement.
If you are charitably inclined, you should plan your donations in advance to ensure you maximize the tax benefits. For those over age 70.5, you may want to consider Qualified Charitable Distribution (QCD), where you can transfer up to $100K from your IRA to a charity. This method not only reduces your Required Minimum Distribution (RMD), but the distribution is also excluded from your taxable income.
Tax Bracket Management
The IRS uses a progressive tax system which means as your income grows, it is subject to a higher tax rate. Therefore, it is important to know in which of the seven federal tax brackets you will fall into. In your high-income years, you may want to reduce your tax liability by increasing your retirement contribution or utilize a tax-loss harvesting strategy. On the other hand, in low-income years, you may want to consider Roth IRA conversions, accelerate income recognition, or postpone deductible expenses.
Tax planning should be part of every individual investor’s financial and retirement plan. There are many strategies available for individuals and business owners, but it requires proper planning throughout the year. If you’d like to learn more about tax planning strategies unique to your personal circumstances, feel free to Talk With Us!
Disclosure: BFSG does not make any representations or warranties as to the accuracy, timeliness, suitability, completeness, or relevance of any information prepared by any unaffiliated third party, whether linked to BFSG’s web site or blog or incorporated herein and takes no responsibility for any such content. All such information is provided solely for convenience purposes only and all users thereof should be guided accordingly. Please see important disclosure information here.