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  • Wendell Brock

Tax Planning Strategies to Help Save You Money

Proactive tax planning throughout the year is a smart way to help manage your tax burden. When planning ahead, you’re able to take full advantage of available tax credits and deductions. Don’t wait until the end of the year, or worse April 15th when taxes are due, to figure out what you can qualify for, or could have qualified for!

First, it’s important to know which tax bracket you’re in. There are seven federal income tax brackets: 10%, 12%, 22%, 24%, 32%, 35% and 37%. Your tax bracket is in part, based on how much money you make. The tax rates or brackets are progressive, the more taxable income the higher the bracket. There is another element to consider, and that is the kind of income. Earned income is taxed differently than investment income or capital gains, or retirement income.

There is a difference between tax deductions and tax credits. Deductions are specific expenses you have incurred throughout the year that can be subtract from your total income, netting the taxable income. Credits give you a dollar-for-dollar reduction in how much you owe in taxes. Both will reduce your tax bill and provide some great tax strategy options.

A common strategy is to utilize charitable donations. This one not only helps you, but can help others who are served by the non-profit you chose. Some common ways to make contributions may use specific legal structures, which include donor-advised funds, private foundations, charitable remainder trusts, stock donations, and IRA donations. There are multiple types of donations you can make, the type of asset being donated, (cash, goods, like-kind, appreciated stock, IRA funds, etc.) and the timing of the gift (present or future gifts) are all factors to consider when tax planning.





Having a health savings account (H.S.A.) is wise, not just for the savings aspect, but because your contributions go into your account pre-tax. It lowers your taxable income. When H.S.A. funds are used to pay for qualified medical expenses, there is no income tax paid on those funds. This can save a family lots of tax dollars. Why pay for medical expenses with after tax money when you can pay for it with tax free money?

Don’t confuse an HSA with a flexible spending account. Both are good, but they are used to pay for different expenses. Yes, some of the expenses do overlap, but if done right you can get twice the tax benefit.

Hopefully, everyone, no matter the age, is planning for retirement. You can structure retirement contributions in a way that helps in the long run known as tax optimization. Paying a little more now rather than a lot more later during retirement. There are so many retirement plan options; we’ll have to save that for another time.

Assets that are held for less than one year and sold, are subject to short-term capital gains, and taxed at the ordinary tax rate. Assets held longer than a year and sold, are taxed at long-term capital gain rates, which is different depending on your modified adjusted gross income. All unearned income, basically all investment income that is not W-2 income, over a certain income threshold is now subject to a 3.8% Medicare tax.

Tax laws/regulations (regs) are so complex it’s hard to get a clear picture of how different types of income interacts with the many regs. Earned income (W-2) is straight forward; when another type of income gets injected into tax return for a year or worse during retirement as a required minimum distribution (RMD). That may throw everything out of whack. Causing tax brackets to change, even to the point that the tax on the next dollar of income is taxed well above 50%. This is one reason why I use a tax map when working through issues with clients. It brings income and taxes together in a way that other strategies can be tested before making a potentially irreversible financial decision.


Image by Recha Oktaviani

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