It’s the fourth quarter. The clock is ticking down. Now is the time to prepare for the “end game.” What you do today can impact your tax obligations, tomorrow. By contacting your friends at O’Donnell, Ficenec, Wills & Ferdig, without delay, potential issues can be pinpointed early. So, they can be resolved appropriately without negative consequences. Likewise, tackling tax planning sooner rather than later avoids the potential miscues, overlooked items and incomplete information that is associated with playing the “rushing game” (scrambling to file!).
Remember: Even the most experienced, skilled, and knowledgeable partners depend on your cooperation. What you get out of the tax process aligns with what you put into the process as it relates to information. We still need the data (the “inputs”) to smartly execute the game plan. So, this naturally leads to “winning” outputs and supports your coming out on top once tax time is in the rearview mirror.
We also appreciate that, reaching out to us sooner into the process than later, avoids not only fumbling when it comes to trimming the tax bill and one’s exposure to risk (i.e., penalties for late filing, incomplete filings). But it is also about developing creative strategies tailored to your situation, to bulk up financial assets.
Strategy No. 1: Step up your college savings game.
Of course, you don’t have to dig too deeply into the tax return to list your exemptions. If you have qualified dependents and paying for college is a looming or present danger, we may look into the American Opportunity Tax Credit. This credit allows for eligible taxpayers to trim their taxes by up to $2,500 annually (per qualifying student). The Lifetime Learning Credit is valued at $2,000 per tax return for each eligible student at qualifying schools.
Section 529 plans are incredible savings vehicle. In Nebraska, we have the NEST Direct College Savings Plan. These and other plans allow for the savings that is set aside for future tuition and expenses to grow, tax free. Additionally, distributions that go toward qualifying costs are not taxed.
Strategy No. 2: Deductions are the (pumpkin) spice of life.
In partnership with you, we can review the deductions that you took in the previous tax year. Be aware that, the benefits associated with some of these deductions may lose their heft if the taxpayer is subject to the Alternative Minimum Tax. So, we may suggest either accelerating or holding off on some deductions as a means of not triggering the AMT. Likewise, refinancing may be a vehicle for those with large deductions for mortgage interest. It may be a smart alternative to rein in financing and stop paying so much toward interest instead of taking the deduction.
Strategy No. 3: Credits go with deductions like football goes with autumn.
We can’t talk deductions without talking credits. Whereas deductions reduce the income before taxes are calculated, credits support tax savings by reducing the total taxes owed. We’ve already referenced education credits from the start. But there are numerous categories of credits, from those for families and individuals, to savings and for homeowners, and associated with health care. We get into some of those areas below. More broadly, the IRS has provided a full list of available credits (and deductions).
Strategy No. 4: Where retirement plans and tax planning collide
As referenced, there are considerable investment- and savings-oriented opportunities to trim tax liabilities. We encourage our clients to start or maximize any tax-advantaged plans they may be eligible for; 401 (k) and other employer-sponsored plans allow one build their nest egg with pre-tax earnings, and to grow it tax free. If you don’t have access to employer-sponsored plans, never fear! Those with IRAs may qualify for deductions related to contributions to these Individual Retirement Accounts.
A note on converting to a “Roth”: There are both “traditional” and Roth IRAs. Now, some traditional IRA-holders may be eligible to transfer portions of their funds from those accounts to a Roth. The Roth has a notable advantage; while the standard account allows for funds to grow tax free until withdrawals are made, funds in a Roth can be withdrawn with no tax penalties. Contributions are taxed, however. For more pros and cons, visit the IRS page here.
Strategy No. 5: At the intersection of tax and estate planning
There have been a dizzying array of changes to the legislation that governs estate taxes in recent tax years. It can be overwhelming and requires the insights of professionals who can accurately wade through and interpret the legalese, and who are on top of the “latest.” Akin to retirement savings, tax planning and estate planning do not exist on their own little “islands.” To ensure the wellbeing of you and yours, it is important to consider all of these different aspects of your complete financial and future picture.
Strategy No. 6: Put your finger on the pulse of Health Savings Accounts
Have you considered the tax savings opportunities associated with your HSA? For those whose health plans quality, monies (pre-tax) can be invested into the account. And, you may withdraw tax-free as well when those withdrawals are on qualifying health services and products expenses. It can also pay to be an “experienced” investor as, those aged 65 and older have the freedom to withdraw from their accounts, tax free, on any purchase – not just health care services.
Feel that chill in the air? OK, it may be the crisp fall weather. Yet, it’s also wind at your back, the momentum you and your finances have when partnering early and routinely with the tax professionals at OFWF. Do not delay to contact our team today. We operate as an extension of your team and family, and will work to preserve the assets that you’ve worked so hard to build …