'Tis (Almost) The Season

Tying Up Loose Ends Doesn’t Apply to Gift-Wrapping Only. Wrap Up the Year by Making Tax Time Work for You

April is months away, but it’s not too early to start thinking about tax season.

Jason Ayala, a private wealth advisor with InReach Wealth Advisors, a private wealth advisory practice of Ameriprise Financial Services, says the process should consist of more than gathering receipts and dropping them off with your accountant. 

“The majority of people think in terms of tax preparation instead of tax planning,” says Ayala, who has 21 years of industry experience. “Tax preparation is filing your return based on what’s already happened. Tax planning is proactively reviewing throughout the year to optimize your overall tax situation today and in the future.”

Ayala offers these end-of-year and year-round strategies to assist with your filings for 2021 and beyond.

For a higher-than-normal income year:

·      Look for opportunities to defer income, like maximizing contributions to health savings and retirement accounts; establishing a retirement account if you’re self-employed; and delaying sales of real estate, stocks, and anything triggering capital gains.

·      Accelerate deductions through prepaying real estate taxes, completing medical procedures, and paying medical expenses. Pay January’s mortgage this month, increase charitable gifts, and make major business purchases.

For a lower-than-normal income year or if you’re retired:

·      Accelerate income by withdrawing money needed to live from retirement accounts for the following year, converting IRA money to a Roth IRA or selling long-term appreciated assets. 

If you have a large estate:

·      Consider making gifts of up to $15,000 per person under annual gift tax exclusion. Or make gifts in excess of the $15,000, if the potential reduction in the estate tax exclusion will impact the taxability of your estate at death.

Comprehensive and beneficial tax planning is not seasonal. And with discussions currently occurring at the federal level about changes in tax laws, staying in the loop is crucial.

“On an annual basis, everyone should be familiar with their tax brackets and understand all the levers they can pull to maximize their tax situation,” Ayala says. “Working with your tax professional and financial advisor throughout the year is the best solution.”

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