We don’t prepare taxes for our clients, but we tend to be the people who help them avoid tax “surprises.” No one wants unpleasant news, so it’s helpful to deconstruct a client’s taxes so we can understand strategic decisions. But there might not be as many ways to save on taxes as people hope…
I recently asked my financial planners what they wish people understood more about taxes. Here’s what they said:
“As the saying goes, don’t let the tax tail wag the dog. Although minimizing taxes is important, it’s just one piece of the puzzle. Tax strategies that prioritize current-year taxes may not be the most beneficial for your long-term financial health, so it’s essential to keep an eye on the bigger picture as well.”
“You can’t avoid taxes. You can only be more efficient with how you are taxed. There are certain strategies that can help delay or minimize your tax impact, but unfortunately you can’t evade them altogether. Think about the positives… taxes help pay for transportation, healthcare, education, research, among many other services that we often take for granted!”
“There are only so many legitimate ways to reduce your tax liability; make sure you are taking advantage of the options the IRS provides: Maxing out retirement plans or individual IRAS, HSAs if you have a high-deductible medical plan, and 529 plans for children’s future qualified educational expenses.
Don’t just focus on taxes today- consider how a ROTH IRA will help you control your taxable income and marginal tax bracket in retirement years.
AND, sometimes, the most effective way to achieve your financial goals isn’t always the most tax efficient one in the short-term.”
“That there is no magic trick everyone else is using that you don’t know about. Taxes are annoyingly complicated. There isn’t a lot you can do as an individual to change your total tax bill. Unless you’re running a business and have lobbyists working for you, you’re in the same boat as many others – paying what feels like more than your fair share respective to the big names we hear about in the news. Also – if you’re consistently seeing a large tax bill or refund, it’s worth revising the W-4 worksheet to adjust.”
There you have it. Is understanding tax strategies a priority this year? Then I recommend you chat with us sooner rather than later…find out more about what we offer!