While it’s common knowledge that tax filing is a yearly obligation, the true art lies in the science of tax planning. This intricate process includes carefully examining and structuring your finances to maximize available tax benefits while reducing liabilities within the bounds of IRS regulations. 

Though diving into tax strategies may require a high investment of time and energy, it is an indispensable part of financial management. Fortunately, with the guidance of our team at RJL Financial Group, you can embrace savvy tax planning techniques that will yield long-term savings and streamline your financial goals for years to come. From maximizing deductions to optimizing credits and exploring legal strategies, we’re here to equip you with the knowledge and tools you need to become a true tax-savvy mastermind. 

1. Get Organized 

Becoming a prudent tax-planning pro begins with one fundamental principle: organization. Rather than scrambling to gather documents and piecing together financial records at the last minute, taking the time and effort to establish a streamlined filing system can work wonders. By creating a dedicated space for tax-related records, receipts, and forms, you’ll simplify the process and keep anything from falling through the cracks. Keep a meticulous record of activities eligible for deductions, credits, and any tax forms you receive, maintaining a clear trail of documentation to support your tax filings.

2. Maximize Your Retirement Contributions

Maximizing your retirement contributions is one of the best ways to minimize your tax liability. This is because retirement plans offer useful tax advantages that are not available if you were to simply put your money in a savings account. There are several accounts to consider, depending on your unique circumstances:

  • 401(k), 403(b), and 457 plans: These accounts allow you to contribute up to $22,500 annually for 2023 ($30,000 if over age 50). Not only that, but contributions done pre-tax won’t show up as part of your annual income. This is a great way to defer taxes until your retirement years when you could potentially be in a lower tax bracket. 
  • Traditional IRA: Contributing to a traditional IRA is another way to reduce your tax liability if your income is within certain limits. You can contribute up to $6,500 for 2023, with a $1,000 catch-up contribution limit for those over age 50. Unlike the qualified retirement plans listed above, contributions to a traditional IRA can be made until the April 15th tax filing deadline.
  • Roth IRA: This is an attractive savings vehicle for many reasons, including no required minimum distributions (RMDs), tax-free withdrawals after age 59½, and the ability to pass wealth tax-free to your heirs. The contribution limits are the same as traditional IRAs. However, Roth IRAs have income restrictions and you may not be able to open an account outright if you are above certain limits.

3. Contribute to a Health Savings Account

An efficient but underutilized way to increase your savings and reduce your taxes is to contribute to a health savings account (HSA). HSAs offer triple tax savings: contributions are tax-deductible, earnings grow tax-free, and you can withdraw the funds tax-free to pay for medical expenses. Unused funds roll over each year and will essentially become an IRA at age 65, at which point you can withdraw funds penalty-free for non-medical expenses. You must be enrolled in a high-deductible health plan in order to qualify for an HSA. 

HSAs can be a great tax-management tool if you are able to pay medical expenses out of pocket and leave the HSA funds to grow. The 2023 contribution limits for HSAs are $3,850 for individuals and $7,750 for families. If you are 55 or older, you may also be able to make catch-up contributions of $1,000 per year. You have until April 15th for your contributions to count for the previous year’s tax return. 

4. Utilize Tax-Loss Harvesting

Tax-loss harvesting involves selling investments at a loss in order to offset the gains in your portfolio. By realizing a capital loss, you are able to counterbalance the taxes owed on capital gains. The investments that are sold are usually replaced with similar securities in order to maintain the desired asset allocation and expected return. 

With the extreme market volatility of 2022, chances are you have some capital losses that can be utilized. For example, if you are expecting a large capital gain this year, sell an underperforming stock and harvest the losses to offset your gain. 

Tax-loss harvesting can also be used to reduce your ordinary income tax liability if capital losses exceed capital gains. In this case, up to $3,000 can be deducted from your income, and capital losses in excess of this amount can be carried forward to later tax years. 

5. Avoid Common Mistakes

One of the most common mistakes with tax planning is neglecting to stay informed about changes in tax laws and regulations. Tax laws undergo updates and revisions regularly, and failing to understand these changes can lead to errors in your tax-planning strategies and potential compliance issues. Consulting with a tax professional who stays on top of the latest tax changes can help you navigate the complexities of the tax landscape, helping you avoid costly mistakes. 

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While these tips can help you become a more tax-savvy investor, seeking the guidance of a tax professional can provide an extra layer of confidence and support. They can offer valuable insights into the specific records you should retain for the next tax year, helping you meet all necessary requirements. 

At RJL Financial Group, we can help you navigate these strategies and more. If you are ready to reduce your tax liability and maximize your savings, we would love to hear from you.

Schedule a complimentary consultation by contacting us at (201) 612-6626 or info@rjlusa.net.

About Jerry

Jerry Clark is the Founder and Principal at RJL Financial Group, an independent financial advisory firm dedicated to supporting and empowering their clients so they can enjoy life without financial worry. With more than 20 years of experience, Jerry specializes in guiding his clients through transitions, whether that be retirement, divorce, or widowhood. His tailored services and strategies help set clients up for the retirement they dream of, overcoming challenges and taking advantage of opportunities along the way. Jerry is a former golf pro who would play every day if he could! Inspired by his sports coaching background, he aims to motivate and empower pre-retirees and retirees to achieve predictable savings results, giving them the ability to feel secure about their future. Jerry is known for going the extra mile for his clients and building relationships that make his clients feel like family. 

When he’s not working (or playing golf), Jerry loves spending time with his wife, Lisa (whom he’s known for 40 years!), and their two grown daughters, Riley and Josie. You can often find him working or relaxing at his beach house in South Bethany, Delaware. To learn more about Jerry, connect with him on LinkedIn.