Want to outsmart the IRS without crossing the line? These underrated tax tips could change the way you grow and protect your wealth.
Tax season comes and goes. However, smart tax planning is a year-long event. Most financial advisors will tell you to contribute to a retirement account, track your deductions, and file on time. But many strategies often go unspoken. Some of these tactics are complex, others require a proactive approach, and many don’t come up unless you ask the right questions. Thankfully, there are some lesser-known strategies worth exploring if you want to keep more of what you earn and grow your wealth more efficiently. These include the following:
Recognize that Timing Is Everything
Most people think tax planning starts in April, but the real opportunities happen much earlier. Timing can be particularly important in terms of capital gains. Making a profit from selling investments could trigger a significant tax bill unless you are strategic about when you sell.
Selling after holding an asset for more than a year means you pay long-term capital gains tax, which is usually much lower than short-term rates. In some cases, you may even qualify for a 0% rate if your income is below certain thresholds. Tax advisors may not emphasize coordinating your sales based on income fluctuations year to year but it’s incredibly effective.
Consider Tax-Loss Harvesting
Tax-loss harvesting is a strategy where you sell losing investments to offset your taxable gains. This strategy is a way to fine-tune your portfolio and improve your overall tax position every year. Carefully choosing which losses to realize allows you to lower your taxable income without changing your investment strategy too much. It’s especially useful in volatile markets when your portfolio might have a few underperformers. Some advisors only bring it up when there is a downturn, but it can be a regular part of smart investing.
Use Tax Brackets to Your Advantage
Your tax bracket can also help you plan smarter moves. For example, you might be able to convert a portion of your traditional IRA to a Roth IRA and pay little to no tax on the conversion during low-income years. Roth conversions during low-bracket years can set you up for tax-free growth in the future. This strategy requires careful planning, but most advisors do not highlight it unless you bring it up yourself.
Think About Strategic Charitable Giving
Donating to charity is a great way to support causes you care about, but it can also give you more control over your taxes. Consider donating appreciated assets like stocks or mutual funds instead of writing a check here and there. This helps you avoid paying capital gains taxes and still deduct the full market value of the donation if you itemize.
In addition, high earners can bunch several years of charitable contributions into one tax year using a donor-advised fund. This increases the chance of crossing the itemizing threshold and unlocking a larger deduction, which is often overlooked in casual giving.
Use Tax Tools
Solo 401(k)s, SEP IRAs, and defined benefit plans can allow you to shelter large amounts of income while saving for retirement. There are also legitimate deductions for home office expenses, equipment, travel, and part of your phone and internet bill. These opportunities can make a noticeable impact, but your advisor might not bring them up unless they specialize in small business planning,
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