Better Tax Outcomes

You hate writing checks to the Internal Revenue Service on April 15. But what can you do now to trim this year’s tax bill? In this article, we will provide strategies to limit your tax obligations and reduce the chance of an unpleasant surprise.

Last year, if you may have owed money to the IRS, how can you make sure that this won’t happen again? On the most basic level, you need to ensure that your withholding amounts are correct, and if you’re self-employed, that you pay the correct estimated taxes. But is there anything else you can do?

The trick is to home in on special breaks for your circumstances and life stage that will help you keep more money in your pocket. This can include the following:

Leftover losses
Use losses to offset income by subtracting profits on holdings you sold last year without any limit. Don’t wait until late in the year to check for holdings that have lost value since they were purchased; they could be sold to offset gains. Look for opportunities to harvest tax losses throughout the year.

Grab a 0% tax rate on gains
Sell some winning funds later in the year, even if you plan to buy them back right away. Although you’ll have to pay a trading fee, you’ll reset your cost basis (what you paid) higher, so that you’ll owe less tax on future gains. (This works if you’re in a low bracket that exempts you from long-term capital gains taxes.)

Hold funds that won’t throw off a lot of taxable income.
Hold funds like a municipal bond fund or a low-turnover stock index fund that you expect to hold for years. Stash a high-income choice like a junk bond fund in an IRA (investment retirement account) or a 401(k) to keep that income off the return you’ll file next spring.

Save on taking courses.
The Lifetime Learning Credit can trim your tax bill as long as your income doesn’t exceed a specified amount.

Boost your 401(k) contribution.
If it’s a traditional plan funded with pretax dollars, your contribution will lower your tax bill.

Seize the American Opportunity Tax Credit.
For parents currently paying college tuition, this tax credit is a rich break, as long as your income doesn’t exceed certain limits.

The most important thing to remember is that every situation is different. Give us a call to find out how you can reduce your tax obligations, and we’ll discuss strategies that are appropriate for your needs and long-term plans. We’ll also make sure you’re withholdings and estimated tax payments are appropriate.