240-428-1622 | info@shermanwealth.com

Tax Efficiency Strategies

Tax Planning

When most people think about financial planning and retirement planning, they consider things like choosing the right investments and saving as much money as possible. While those items are certainly important, there’s one other area that can have a big impact on your financial health – Taxes.

We all face the responsibility of paying our taxes, however the amount of taxes you owe can be potentially minimized by planning ahead. Reducing your tax bill gives you more money to save for your future. Compound those savings over a long period of time and you can give your retirement a serious financial boost.

Tax Planning Strategies vs. Tax Preparation

Many people think that tax planning is what occurs every year in April, when you fill out your tax returns or take them to your accountant. That’s tax preparation, which is actual act of filing your taxes.

Tax planning is something much different. It’s an ongoing process of making important financial decisions while recognizing the tax implications of the decision. It involves planning steps that may reduce your tax burden and benefit your financial future.

Tax planning strategies can involve the following types of decisions:

Qualified retirement plan contributions

There are a number of different vehicles with which to save for retirement. From 401ks to traditional IRAs to Roth IRAs, you have a lot of options. Sometimes it’s hard to know where best to save your money.

A 401k or traditional IRA may give you a tax break now, but not one later. With a Roth IRA, you forgo today’s tax break, but get a tax break in retirement. If you own your own business, you have even more choices, including a SEP IRA and a company 401k plan.

When we work with you on tax strategies, we help you make the informed choice with regard to your tax situation and your financial plan. We can project out the potential benefits as well as any disadvantages from each type of plan so you can make an informed decision.

Capital Gain/loss

Whether you make or lose money on an investment, each outcome brings its own tax consequences. A capital gain is good because it means you made money. However, it will also increase your tax bill. A capital loss isn’t ideal, but it gives you a bit of a tax break.

The tricky part is knowing when to take a gain or loss. There’s a lot to consider, including your current tax situation and how you feel about the investment going forward. We can help you better understand all of the factors and reach the appropriate decision for you.

Tax shouldn’t just be a consideration every April. Rather, it should be a part of your ongoing planning process. It’s important that you work with someone who understands how financial decisions can impact your tax bill. That’s what we’re here for. We help you make sense of every decision from every angle so you can take the appropriate course of action for your financial future.

LFS and its representatives do not offer tax planning or tax advice. Individuals should consult their tax professionals regarding their specific circumstances.