Top Tax Strategies for Individuals

More than just a yearly report to the IRS, taxes are an effective tool for protecting your wealth and contributing to your short- and long-term financial goals. Discover the top tax strategies individuals can follow to make the most out of their tax obligations.

Developing a Tax Plan: Key Steps to Take

Your tax strategy is a plan of action for reducing taxes, and here’s how you can get started developing your own.

Get organized

Effective tax strategies require detailed record keeping, so make sure to hang onto any receipts and transactions that could impact your tax bill. After all, you won’t know how to best reduce your taxes if you don’t know exactly what you’ll be taxed on. Additionally, it pays to be organized in case the IRS decides to audit any of your tax returns.

Understand your requirements

To start lowering your tax obligations, you need to understand what you actually owe. Ideally at the beginning of the year, so you leave yourself plenty of time, be sure to go over any available tax deductions and what’s required to claim them.

Decide on a long-term strategy

When it comes to tackling your long-term tax plan, a good place to start is deciding whether you want to do the planning yourself or enlist the help of a trusted financial advisor, such as a Certified Financial Planner or Certified Public Accountant. No matter which route you take, getting a broad view of your taxes can help lower future costs, today.

Put together your annual strategy

You may think of your annual strategy as the year-end process of trying to reduce your taxable income. However, this process should occur at the beginning of the year. This gives you time to take additional steps towards lowering your yearly taxes and contributing to your long-term goals.

Conduct ongoing reviews

Performing a mid-year and year-end review can help you monitor whether changes you implemented are achieving your desired outcome. If they aren’t, you have time to make adjustments before the tax deadline rolls around. In the context of your long-term plan, regular reviews ensure you’re taking concrete steps towards your objectives.

Tips for Tax-Savvy Individuals

Stay up to date on tax legislation

Tax laws are evolving constantly, and everyone needs to keep up with the changes—no matter their tax bracket. To ensure your tax plan is up to date, set aside time to review the latest legislation, such as yearly contribution limits, and how it may impact your goals and strategy.

Increase your retirement account contributions

For many people, maxing out their 401(k) isn’t practical, but increasing your contributions can help lower your tax liability. Generally speaking, the more money you pull from your paycheck and put into your retirement account, the more you can reduce your taxable income.

Open a flexible savings account

Offered by many employers as an employee benefit, a flexible savings account allows you to make contributions dedicated towards specific expenses, such as health care, without having to pay taxes on the money you add.

Open a health savings account (HSA)

An HSA is essentially a personal savings account that individuals with high-deductible health plans can use for medical expenses. Any money added to the account is exempt from federal income tax, contributions grow tax-deferred, and funds can be withdrawn tax-free at any time.

Aim for long-term capital gains

In addition to being a valuable method for growing your wealth, long-term investing can have a big impact on the amount of taxes you owe. Unlike short-term capital gains (gains on stocks held for a year or less), long-term capital assets earn you a preferential tax rate not exceeding 20%, apart from a few exceptions.

Tax-loss harvesting may also lower your tax liability. If an investment is underperforming, you can use sell that investment at a loss to offset the taxes on your ordinary income by as much as $3,000.

Consider starting a business

Starting a side business not only generates additional income, but it also offers numerous tax advantages. Many daily business expenses can be deducted from your total income, reducing your overall tax liability.

Would you like to discover whether these strategies are right for you and your financial goals? We’re here to help with our comprehensive financial planning and tax services. Contact us today to learn more.