What are your largest annual expenses? Most people will answer this question by listing their mortgage payment, their automobile expenses… and perhaps their federal and state income tax bills. Yes for many people, taxes take a huge bite out of their yearly budgets. There are many ways to reduce tax liability to some extent, but perhaps the most valuable ones are those that also help you invest in your own future.
Look out for capital losses. For some of you, gains might comprise a significant part of your total income. Each December, your accountant might advise you to look for losses that will help to offset your capital gains. This is often done to help you reduce the taxes you owe on those gains. But if you wait until the end of the year to perform these complicated tax maneuvers, you could miss certain opportunities or even trigger suspicion at the IRS. Remember to look for alternative investments to offset your gains throughout the year.
Consider the long-term performance of assets. As you plan for retirement, one common strategy is to adopt a safe, low-risk investment strategy. But if you decide to sell high-performing assets, you might be hit with capital gains taxes. You would be right to worry about this immediate tax consequence, but because some funds see so much turnover, it could be worthwhile to pay the taxes one time rather than hold onto them for the long term. We can help you run the numbers for both scenarios, so that you can choose the right path for you. In some cases it is better to pay more taxes in one year, in exchange for lower taxes in years to come.
Keep your eyes peeled for new opportunities. Talk to someone who managed to retire early, and they will probably tell you that they were always on the lookout for ways to save money. That’s why staying informed is one of the best investments you can make! Follow a few investment blogs, stay in touch with your accountant, and schedule regular meetings with us to review your financial plans. Actively managing your financial life will help you to recognize valuable savings opportunities when they present themselves.
Portions of this article have been excerpted from “3 Investment Maneuvers That Will Help You at Tax Time” by David Ning, U.S. News. David Ning is not affiliated with LPL Financial.
Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual.
This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax advisor.