6 Tax Strategies for ALL Phases of Life
It is that tax-time of year again! How can you create the most favorable and efficient tax scenario by using retirement plans, HSAs, your mortgage, charitable donations, college expenses and Roth conversions? Watch financial advisor, Dave Gordon, CFP and crowd favorite Jude Gordon (Dave’s 4 yr. old son) to explore which options may apply to you.
FIVE THINGS YOU SHOULD KNOW
- Equity Markets – were negative this week as U.S. stocks (S&P 500) fell -2.02% while international stocks (EAFE) dropped -1.88%
- Fixed Income Markets – also dropped this week with investment grade bonds (AGG) down -1.89% while high yield bonds (JNK) fell -2.81%
- Wages Raging – tightening labor markets across the globe coupled with heightened inflation continues to pressure employers. In the U.K. companies have raised their starting salaries by the quickest pace on record. Meanwhile in the U.S. Walmart announced they are increasing starting pay for their truckers to $110,000.
- Extended Sanctions – this week saw another round of sanctions against Russia, this time from the European Union. The group signed off on a package that includes the end of coal imports from Russia, with the U.S. congress also considering a bill that will end all imports of Russian gas, oil and coal.
- Key Insight – [VIDEO & ARTICLE] It is that tax-time of year again! How can you create the most favorable and efficient tax scenario by using retirement plans, HSAs, your mortgage, charitable donations, college expenses and Roth conversions? Watch financial advisor, Dave Gordon, CFP and crowd favorite Jude Gordon (Dave’s 4 yr. old son) to explore which options may apply to you.
INSIGHTS for INVESTORS
By Dave Gordon
“There are two certainties in life; death and taxes.” - Benjamin Franklin
The Problem – As a write this I imagine there are millions of Americans frantically getting their taxes completed before the cut-off this year. Tax season can be a stressful time, and quite frankly compounded by the fact that they can seem so complex.
To help demystify this stressful season, below are six basic strategies most folks can still utilize in some capacity.We thought it would make sense, then, to arm you with some basic tax strategies to potentially save you money now.
Solutions – While the updates from the Tax Cuts and Jobs Act of 2017 effectively drove most people to move to the standard deduction, there are still some basic things you can do without having to necessarily itemize:
- Retirement Plan Contributions
– While there are dozens of different retirement savings plans offered through work or if you are self-employed, we’ll use the 401(k) as an example. You are allowed to save $20,500 in 2022 (add an additional $6,500 if you are age 50 or older), which can work to reduce your tax burden significantly. These savings work to reduce your current tax burden and grow tax deferred until used in retirement.
- Use an HSA – While this is the most tax efficient savings vehicle in the marketplace, it is by far the most under-utilized. HSA’s are triple tax deferred (meaning the dollars never get taxed). While you will need decent cash-flow and a qualifying plan to save, the $7,200 annual savings limit (for a family) can have a massive impact on your tax bill now, and your financial future. Talk with your advisor on whether you qualify for this and / or how to use it!
- Mortgage Interest Deduction
– While this used to be the single most advantageous tax deduction for homeowners, it has become a bit of a moot point as many homeowners are simply moving to the standard deduction. However, if you refinanced last year, own a home with a mortgage on it, and donated heavily to charities; it may make more sense to itemize. Definitely talk to a tax professional or run the analysis yourself if you are in this camp.
- Charitable Donations – While this has become much less of a hot topic as the general population moves to the standard deduction, anyone with a retirement account and at RMD age (age 72 or older) can utilize the Qualified Charitable Distribution strategy to avoid taxation on your RMD (or part of it). Per IRS guidelines, if you donate all or part of your RMD directly to charity (up to $100,000), those donations reduce your taxable income by the amount donated. This way you get your standard deduction PLUS the tax benefit of giving to your favorite organizations. It’s key to work with your advisor or the custodian that is holding your retirement account to ensure you take the distribution correctly AND it goes to a qualifying charity.
- Interest and College Education Costs – Since these are considered “above the line” deductions, you don’t necessarily need to itemize these expenses to take advantage of the deduction. However, there will be income limits on these deductions, so you may not be able to deduct student loan interest or related college tuition and fees if you earn too much.
- Roth Conversions – While second nature to us in the retirement planning business, we see all too often folks not even having the conversation with their advisor. Many believe people may think this to be a pre-retirement strategy, but we at TEN have continually noticed massive positive long-term impacts for clients in between retirement and taking their social security (maybe ages 60 – 70). This, in conjunction with a sound social security strategy, may allow for years of ongoing Roth Conversions in your early retirement, allowing for very tax efficient wealth transfer and / or income tax strategies for later in retirement.
We wish you the best this tax season and hope one of these strategies may help you or someone you know find this time of year just a little less stressful. Please reach out with any questions!
To Your Health,
Dave and the team at TEN