ARI BAUM CFPÂŽ
âTHE ONLY WAY TO DECREASE MY TAXES IS TO REDUCE MY INCOME.â MANY AMERICANS FEEL SIMILARLY, BUT THEREâS A BETTER WAY. WHILE YOUâD LIKE TO PAY LESS, YOU DONâT WANT UNCLE SAM KNOCKING ON YOUR DOOR FOR AN AUDIT EITHER! TAX FORMS CAN BE COMPLICATED AND OPAQUE, MAKING IT HARD TO KNOW IF YOUâRE CLAIMING THE RIGHT AMOUNT IN DEDUCTIONS AND CREDITS. YOUâRE TIRED OF FEELING LIKE SOMEONEâS TAKING ADVANTAGE OF YOU WHEN IT COMES TO TAXES.
Itâs not that you object to paying your fair share, the problem is you donât really know if the amount youâre paying is fair. It might stress you out so much that you delay meetings with your accountantâbut the thought of filing late gives you gut-wrenching anxiety!
The good news is that there may be some tax opportunities buried in your tax return, and all you need to do is a little digging. The bad news is that some of these opportunities could disappear if they arenât used before midnight on December 31, 2022.
BE CHARITABLE AND SKIP YOUR REQUIRED WITHDRAWALS
The 2017 Tax Cuts and Jobs Act (TCJA) rolled back the required age for minimum withdrawals from retirement accounts from age 70½ to 72. If you donât need the income when you turn 72, you may resent having to pay taxes on withdrawals you donât need to take. Thatâs money that youâd prefer to leave in your retirement account for later when you may need it or you want to provide a legacy.
Thatâs where charity comes to the rescue. Why wait to give money to a favorite cause until after your death? Instead, you can give them operating cash up to $100,000 today through your Required Minimum Distribution (RMD) and avoid paying taxes on your withdrawal. This strategy is known as the Qualified Charitable Deduction, or QCD.
Itâs critical to send the money directly to the charity from your retirement account, because the contribution is disqualified if the money makes a stop in your checking or other account along the way. As long as you follow the requirements, your QCD allows you to achieve the simultaneous objectives of supporting a cause thatâs near-and-dear to you and reducing the amount of taxes you have to pay Uncle Sam.
MAKE THE RIGHT INVESTMENT ACCOUNT MOVES
Do you have the right investments in the right account? Itâs not just about finding savvy investments, itâs also about determining where to put them. After all, as they say in real estate, itâs all about location, location, location.
Some types of assets perform better in one type of account over another. Ensuring youâve got the right assets in the right places can potentially help you lower your tax bill.
If you own your own business, you have access to a variety of retirement plans. Depending on your business, you may be able to set aside more retirement money in one plan compared to another. Do you have the right plan for your business?
GATHER YOUR DEDUCTIONS WHILE YOU CAN
As every business owner knows, deductions are key to reducing your tax exposure. Even if youâre not an entrepreneur, tax deductions are hugely beneficial. Tax deductions that wealthy people have relied on for years such as state and local tax deductions, including mortgage interest and charitable deductions, were seriously cut back through the TCJA of 2017.
If your 2023 property taxes are billed or levied before the end of 2022, prepay them and claim them as a deduction if possible. (Note: You canât claim your 2023 property taxes in 2022 unless theyâre formally billed by your local government before December 31, 2022, even if youâve already paid them).
Unreimbursed medical expenses are deductible if they meet the 7.5% Adjusted Gross Income (AGI) floor, so accelerate any medical procedures and payments that your health insurance doesnât cover. These also include items such as long term care premiums and home modifications if youâre planning to age in place. While you canât prepay for services you intend to have in 2023, you can increase your deductible expenses by scheduling services and procedures before December 31, 2022 that you would otherwise postpone.
WRING OUT YOUR 2022 TAX RATES
2022 tax rates are relatively low, especially for high earners. Depending on how the midterm elections shake out, making the most of the tax rate you have in 2022 could be a very smart move!
Mining the most value out of your tax rate could mean doing some Roth conversions, or even harvesting some capital gains on your investments. Since stock prices are dropping, it could be a great time to take some profit off the table and then reinvest at a lower price pointâas long as you stay on the right side of the wash sale rules! These techniques must be completed by December 31 to be on your tax return for this year.
BE CONFIDENT THAT YOUâVE DESIGNED A SOLID TAX PLANNING STRATEGY
Youâre a high-earning taxpayer who wants to pay your fair share in taxesâbut no more than that. Billionaires who have far more money than you do often pay far less in taxes, which leaves you feeling like youâre being taken advantage of.
Fortunately, you donât have to keep feeling that way. Understanding what the ultra-wealthy do and some of the strategies they use can help you legally reduce your tax burden. By operating within the rules, you can pay less and still not worry about an IRS audit.
However, you canât just planâyouâve got to execute on your strategy. Act fast because many of these opportunities turn right back into lumps of IRS code when the stock exchange closes on December 31 and some of these techniques may disappear forever by that deadline as well.
Another tool that the ultra-wealthy use is actually pretty simple: the help of knowledgeable professionals. Itâs one thing to get stock tips from your brother-in-law, best friend, or college roommate, but quite another to put together and find what your personal plan has been missing.
The content is developed from sources believed to be providing accurate information. Consult your financial professional before making any investment decision. Investing involves risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss. Past performance does not guarantee future results.
Ari Baum, CFPÂŽ is the founder and CEO of Endurance Wealth Partners. With over 25 years of experience in the Financial Services industry, he brings his in-depth experience to Conceive, Believe, Achieve, for his clients.
Securities and Advisory services offered through Prospera Financial Services Inc. Member FINRA/SIPC.
Brokerage and Advisory accounts carried by Wells Fargo Clearing Services, LLC.
