By Greg Hart, CFP®
There’s one thing I believe we can all agree on: taxes are no fun! For many, just the thought of having to prep and file can cause great distress, but did you know you spend almost four months of every year working to pay the IRS? (1) This realization can really be the salt on an already raw wound. The fruits of all your hard work and energy for four months being handed right over to the government…ouch.
Unfortunately, taxes are a necessary evil. You may not always agree with how your tax money is spent, but there’s no denying it also improves your quality of life. In light of this truth, paying your taxes diligently is one thing, but paying more than you have to is just plain dumb! Over-paying should be avoided at all costs. And, surprisingly, it’s often not. Many people won’t be bothered to invest some time in financial planning, and therefore they will pay more taxes as a result.
Most people I work with want to enjoy what is rightfully theirs, not heedlessly hand more of their hard-earned money over to the government. Here are a few easy ways to make that happen.
Make The Government Pay For You
Did you know it is possible to save for retirement and lower your tax bill at the same time? It’s true, Uncle Sam eliminates taxes on the money you contribute to employer retirement plans and Individual Retirement Accounts (IRA or Roth IRA). If possible, capitalize on this advantage by maximizing your contributions to $19,000 per year for 401ks ($25,000 for those 50 and older) and $6,000 per year for IRAs ($7,000 for those 50 and older). (2) Be careful however, especially with IRA contributions, as there are income limits regarding keeping the contributions tax-deductible.
Know Your Tax Brackets
This one can make a huge difference. By familiarizing yourself with the different tax brackets, you might be able to accelerate or delay your income to avoid falling at the low end of a tax bracket. Keeping yourself at the high end of a bracket can lower your tax rate.
Harvest Your Losses
Selling an investment for a loss might not be a good idea. However, if you do it to offset the capital gains from your high-performing investments, it can be an effective tax-reducing strategy. If it was a solid stock that has just had a temporary bad run, you could, after 30 days (observing the wash sale rule), re-purchase the stock you sold.
Build Up Your Health Savings Account (HSA)
If you’re eligible for an HSA, this is something you definitely should be doing. The 2019 annual contribution limit is $3,500 for individuals and $7,000 for families. Healthcare expenses are inevitable—you might as well pay for them with tax-sheltered funds. (3)
Create A 529 Plan and/or Coverdell IRA
The price tag on higher education here in the U.S. is ridiculously high. If you’re planning on helping your children (or grandchildren) with those costs, opening a 529 plan or a Coverdell IRA is the way to go. Not only will these funds grow tax-free, but you may also be able to deduct contributions (529 only, and state dependent) as well as lower your tax bill.
We’ve just shared a few of the many effective ways to reduce your tax bill, and each strategy essentially frees you up a little more to work more days for yourself—and fewer days for the IRS. If you want to be sure you’re not giving Uncle Sam more than his fair share, your best bet is to get expert help. In most cases, the cost to work with a professional advisor will pay for itself many times over in tax savings.
Here at Haddon Wealth Management, we will not only help reduce your tax bill, but we’ll also create a personalized plan to help you work towards achieving your financial goals. To learn more about how we can help, call our office today at (856) 888-1744 or contact us online to schedule a complimentary get-acquainted meeting!
Gregory M. Hart, CFP® is the founder and managing director of Haddon Wealth Management, LLC, a registered investment advisory firm that provides comprehensive wealth management (in-depth financial planning and sophisticated investment management) for clients who value a relationship-driven approach that delivers customized solutions. Based in Haddonfield, New Jersey, Greg works with clients throughout the Delaware Valley, as well as nationwide. To learn more, connect with Greg on LinkedIn, visit our website at www.haddonwealthmgt.com, or call (856) 888-1744 to begin a discussion.