With income tax brackets as high as 37 percent, you owe it to yourself and your family to pay only the taxes you legally owe and not a penny more. Some smart moves on your part can help reduce your tax burden and give you more control over where your money goes, both now and in retirement! 

When finding a financial advisor for retirement, look for a full-service, family-office style firm like Global View that can help you with all of your needs under one roof. This can help you create a comprehensive financial plan and prevent anything from falling through the cracks. 

As a full-service firm, in our experience, below are 6 ways you can reduce your taxes without triggering the wrath of the IRS.

Charitable Giving

You can take tax deductions for charitable contributions made with the following items:

• Cash
• Checks
• Payroll deductions
• Donations of goods and clothing

These deductions can add up to a significant amount and should not be overlooked.

The new tax laws introduced in 2017 made it somewhat harder to benefit from charitable contributions, which can be claimed when you itemize your deductions. In 2017, the standard deduction nearly doubled, making it less rewarding to itemize deductions. The CARES Act of 2020, however, did allow cash donations up to $300 to be deducted even if you don’t itemize. 

Giving to good charitable causes not only reduces your tax burden, but it also helps others in need and allows you to spend your money in support of the things you find important. In other words, charitable giving increases your control (and reduces the control of the government) over the use of your money.

Let’s talk! Schedule a no-strings-attached conversation with the Global View team to see how we can help.

Roth Accounts

Contributing to your retirement accounts is of utmost importance. You can annually contribute up to $6,000 of your work earnings to an IRA ($7,000 if you’re age 50 or older) and $19,500 to your 401(k) ($26,000 if you’re age 50 or older). Plus, your employer can contribute to your 401(k), bringing the total one-year contribution limit up to as much as $58,000 (or $64,500 if your 50 or older).

If you have a Roth retirement account, while the money is not deductible in the year you contribute, it grows tax-free, and you can withdraw your money without taxes or penalties in retirement, if you follow the rules. Those rules include holding the account for at least five years before withdrawing earnings. You also must be age 59-½ to avoid taxes and penalties on your withdrawn earnings, unless you qualify for an exception. You can always withdraw contributions tax-free, and a Roth IRA has no Required Minimum Distributions (RMDs).

Roth conversions, in which you transfer the money in a Traditional account into a Roth account, can be an especially wise strategy if you got a late start to retirement planning. Make sure to discuss your specific situation with a financial advisor first, as a conversion is not the right option for everyone.

If retiring in Greenville, SC (or anywhere in South Carolina, for that matter), it’s good to know that the state is one of the tax-friendliest on retirees. 

Estate Planning Options

For 2021, estates with a value above the $11.7 million exemption are subject to taxes on the surplus. That means your executor can subtract $11.7 million from the value of your estate before figuring your estate tax burden. Estate taxes range from 18 percent to 40 percent, with the highest rate applying to surpluses of $1 million or more.

You can reduce your estate tax burden by giving gifts to family members. You can annually give up to $15,000 per recipient tax-free (or $30,000 for married joint filers). 

Another option is to set up an Irrevocable Life Insurance Trust (ILIT). Although life insurance proceeds are generally free from income taxes, they could become part of your taxable estate. An ILIT transfers ownership of your life insurance policy to another person, thereby excluding it from your taxable estate. 

Other options you may want to discuss with a financial advisor include family limited partnerships (for family-owned assets and businesses) and Qualified Personal Residence Trusts (QPRTs). A QPRT allows you to transfer the ownership of your home into a trust. While the QPRT is in force, you can live in your home without owing rent. Both strategies reduce your estate size.

For more estate planning tips, check out our new guide: Estate Planning in the Carolinas.

Year-End Strategies

Believe it or not, the end of the year is already approaching! As we start the last quarter of 2021, there are several steps you can take now to reduce your tax burden next year. These include postponing income (such as a year-end bonus or, if self-employed, deferring billings) and taking last-minute tax deductions. Those deductions can arise from donations of appreciated stock or property. If you owned property for more than a year, you avoid paying capital gains tax on the appreciated value while deducting the property’s current market value.

Another time-tested strategy, known as tax harvesting, is to sell losing investments to offset the gains realized on winning investments and up to $3,000 of ordinary income. Make sure you discuss your options with a financial advisor before making any change to your investments.

Even if you’ve reached age 72 and must start taking RMDs from your retirement accounts, the law now permits you to continue making tax-deductible contributions. This sets up at least a partial wash of the taxes on your RMDs.

Know What Deductions You Qualify For

Here is just a partial list of deductible items:

• Charitable contributions
• Deductible taxes
• Miscellaneous expenses
• Property tax
• Real estate tax
• Sales tax
• State and local tax deduction limit

You may be eligible for other deductions as well, depending on your personal circumstances. For example, are you aware of the new child tax payments? Keeping up with latest tax rules is a demanding task. Unless you are a tax professional, talk to a financial advisor about how you can take full advantage of all deductions available to you.

Plan for Taxes Ahead of Time

Your tax strategies shouldn’t be put off until the last minute, because they may take some time to execute. Planning for taxes well in advance can help make sure you don’t leave money on the table. When finding a financial advisor for retirement, make sure he or she has the right experience to help you plan for taxes while ensuring you are aware of all the ways you can reduce your overall tax burden. 

While you’re at it, ask your financial advisor to review your entire wealth plan. At Global View, we believe a financial review should be done at least once a year to ensure it’s up to date. This is a great time to review and update the arrangements specified in your will and trusts as well. Ensure your beneficiaries are properly named and reflect life changes, such as births, deaths, marriages, adoptions and divorces. 

A holistic planning approach to your finances will not only help you reduce your taxes but can also help you achieve the goals you’ve set for yourself, preserve your wealth, and protect your loved ones. Don’t wait – get a conversation started.