For Mark Roberts’ Use: What are your largest expenses? Things like business expenses, or your mortgage, might come to mind. But for most people, taxes are actually their heaviest financial burden. Yet we tend to think about income taxes only once per year!
The truth is that considering your tax liability throughout the year, and making decisions along the way, can actually help to lower your tax liability in the spring when you file your tax return. In particular, your investment decisions can not only help you work toward a more secure future, but also potentially lower your bill with the IRS.
Capital losses. When you calculate your income taxes, gains on investments might comprise a significant part of your income (and therefore trigger significant taxes). On the other hand, you might also have some capital losses that will offset those gains, and lower your tax liability. But you shouldn’t wait until next spring to identify those losses, or you might miss opportunities throughout the year.
You also want to avoid too many complicated maneuvers right at the end of the year, in December. These might cause the IRS to look more closely at your return. It’s not that you’ve done anything wrong, but who wants to deal with the headache of an audit? Looking for alternative investments throughout the year is usually the better way to go.
Think about long-term performance. Often, retirees change up their investment strategy after retirement, because their tolerance for risk has changed. You might worry about selling high-performing assets at this time, because you could trigger capital gains taxes. But you should also weigh that worry against the risks of taxation over the long term, and also against the risk of losses from riskier investments. Consult with us, and we can help you decide if paying more taxes in one year, in exchange for lower taxes for many years to come, will be beneficial over the long term.
Take an active approach. In speaking to very wealthy people, one thing we have discovered is that they are always looking for ways to both make money and save money. The easiest way to do this is by staying informed, both on your portfolio and the financial world as a whole. So, continue to educate yourself by reading the newspaper or online articles, stay in touch with your accountant, and schedule regular meetings with us to review your standing.