What happens to your tax liability with proper financial planning?
Do you like paying more in taxes than you have to? Not many people do. Most people have what is called a tax liability, which is “the total amount of tax debt owed by an individual, corporation, or other entity to a taxing authority such as the Internal Revenue Service,” according to Investopedia. This is incurred by earning or generating income. If an individual does not have an income or earns less than is required to file a tax return, then it is possible to not have a tax liability, but it is rare. With the correct financial planning, you can reduce your tax liability.
Careful financial planning can help you lower your tax liability. Here are three ways to help you lower your tax liability:
Reduce your taxable income
You can lower your tax liability by reducing your gross taxable income. You can do this by funneling pretax dollars into a retirement plan such as a 401(k), 403(b), IRA or Health Savings Account. It is also wise to max out your contribution limits on your retirement accounts.
Sell off failing investments
Evaluate your investments. Are there any that are no longer worth what you originally paid for them? It may be time to sell them off to reduce your tax liability. This strategy is often referred to as tax-loss harvesting; such losses are written off against your investment gains. If the losses are greater than realized gains, a taxpayer can use them to offset ordinary income up to an annual limit of $3,000. If there are additional losses, they can be carried forward to a future tax year.
Give to charity
You can lower your tax liability by donating to charity — but only if the contributions you make are itemized. As a note, donations over $250 require a receipt to be considered a valid deduction.
Talk to a ProVise CFP® professional about reducing your tax liability with proper financial planning
At ProVise Management Group, our CERTIFIED FINANCIAL PLANNER™ professionals can get to know you and your current financial circumstances, goals, risk tolerance and personal values to help you develop a plan that works for you. We can also create a written plan for you at a fiduciary standard of care. All our written plans come with an unconditional money-back guarantee. If you are unhappy with your written plan, you can return it to us, and we will refund 100% of the fee paid.
Are you ready to talk to a professional about lowering your tax liability? Contact ProVise today to schedule a complimentary consultation.