Why a Tax Strategy Should be a Part of every Financial Plan

Why a Tax Strategy Should be a Part of every Financial Plan

February 10, 2022

What does a tax strategy entail?

A tax strategy looks closely at the tax implications of your individual, investment, and business decisions, and investigates ways to minimize your liability.

This requires an in-depth understanding of the tax implications of various investments and investment strategies.

Which taxes will my financial advisor look at?

Federal taxes. Reducing what you owe in federal income taxes is one of the main goals of a tax strategy. It may involve deferring or shifting income, deduction planning, investment tax planning, and year-end strategies.

Wealth distribution.  Funds given during your life or at death can be subject to both federal and state taxes, including gift, estate, income, and inheritance taxes. We can help you understand these taxes and make a strategy that minimizes losses to taxation.

Business taxes. For business owners, many financial decisions should be made based on taxes, from choosing a business entity, to profit payouts, to accounting to succession planning.

Tax deduction options throughout the year.  Personal property taxes, mortgage interest, charitable donations or gifts, and expenses that are directly related to your job, expenses from investments, state taxes, and more are all potential options to lower your final bill.

What are some examples of applying tax strategy to my finances?

Retirement example: When funds are placed in a retirement savings account, you are not charged taxes until you remove that money from the retirement account. So, by the time you withdraw it, you'll likely be in a lower tax bracket and need to pay significantly less in taxes!

Uncertain income example: Predicting that you’ll see an increase or a decline in your income in the coming years?  You can determine if it makes more sense to pay taxes now or put money into tax-deferred accounts until a later time when you’ll owe less.

With proper tax planning, your financial life can become a much easier one.

Do you have more questions on how we approach strategy at LPSC Financial? Reach out to us!

Commonwealth Financial Network® does not provide legal or tax advice. You should consult a legal or tax professional regarding your individual situation.