Tax Planning

Taxes are usually the last thing people want to think about. And for most of us, taxes are a necessary evil, so we pay them and move on to more interesting topics.

However, for anyone looking to retire comfortably, taxes are a critical part of planning. With the right tax planning strategies in place, you can protect your income and greatly reduce your tax burden.

At Charles R. Green and Associates, Inc., our team of financial planners is focused on pursuing your financial dreams. We work with you to plan and manage your financial life in a way that benefits you today and tomorrow.

Tax planning is the analysis of your personal and/or business financial situation from a tax savings perspective. This means you will be aware of tax laws and incentives that can save you money, and make informed and strategic decisions about how to invest, save, and spend.

Ultimately, tax planning allows you to determine what you can do, within the law, to reduce your taxes and maximize your after-tax income.

While the amount of tax you pay depends on your income, there are many ways to reduce your effective tax rate. Here is a summary:

• Maximize contributions to retirement accounts; That way, your income will be lower (and possibly in a lower tax bracket). Plus, contributions can be deducted from your tax bill.
• Claim all allowable deductions and credits.
• Stay on top of changes to tax law; The IRS changes the rules every year, sometimes in ways that affect how much money taxpayers owe or get back in refund checks. Learn what's new so that you can plan accordingly. A financial planner can also help you with this.
• Determine your income and expenses for the year; This helps you estimate your tax liability and plan accordingly.

Let us now get into this in more detail.

Tax planning is important because it helps you ensure that you don't pay more than you have to in taxes. Through it, all elements of the financial plan work together in the most tax-efficient manner possible.

Although we cannot avoid taxes entirely, there are steps you can take to minimize them and make sure you're getting the most out of your money.

Here are various tax planning strategies you can use to reduce your tax liability:

Reduce Your Taxable Income

Depending on your situation, there are various ways you can reduce the amount of income that is subject to federal income taxes:

• Contributions to retirement plans such as a 401(k) or traditional IRA are generally tax-deductible, which means they aren't subject to federal income taxes until they are withdrawn during retirement.
• You may also be able to deduct property taxes and mortgage interest paid during the year. Reviewing these options with an accountant or financial professional can help you determine the best choice for your situation.
• Utilizing medical savings accounts.

Participate In A 401(k) Plan

If your employer offers a 401(k) plan, contribute as much as you can up to the annual limit. Not only does it lower your taxable income now, but it also provides a tax-deferred vehicle for retirement savings.

In addition, individuals who participate in these types of plans also receive an employer match which provides additional investment returns that are not subject to taxes until withdrawn.

Utilizing Roth Conversion

A Roth conversion is when you convert funds from a traditional IRA or other qualified retirement plans into Roth IRA assets.

This may be advantageous for those who do not qualify to make Roth IRA contributions due to the income limitations placed on these types of accounts. A conversion allows you to pay tax today on your investment earnings so you can withdraw these funds in retirement entirely tax-free.

Optimal Withdrawal Strategies

An optimal withdrawal strategy maximizes a retiree's after-tax, average annual spending power over their lifetime. The goal is to minimize the chance of running out of money before death by efficiently balancing three variables: life expectancy, inflation, and marginal tax rates (MTR).