When combined, federal and state taxes can be the single biggest investment expense that you will face every year; however, it is not too late to reduce your taxes owed on income and investment gains for the 2017 tax year. At Snow Financial, we believe that helping our clients navigate the tax landscape is one of the most meaningful services that we can offer. Here are three proven measures that can help reduce your 2017 tax payments:
Deferral: Diversifying between tax rates, taxable investments, and tax-deferred investments is the first step to controlling how much you will pay and when you will pay your 2017 taxes. Deferring taxes during peak earning years can save you thousands of dollars each year. Tax deferral will help you effectively manage the timing of your taxes and generate more wealth through diversification.
Max It Out: The second step to reducing your 2017 taxes is by maxing-out any tax-deferred accounts and other qualifying plans such as 401(k)s, and to ensure that you have made catch-up contributions if you are over 50. You can then max-out any traditional and Roth IRAs. Roth IRAs will require that you pay taxes now, while Traditional IRAs will not. Your traditional IRA can also grow tax deferred with a non-deductible contribution. Remember that the deadline to make an IRA contribution for the 2017 tax year is April 15, 2018.
Location, Location, Location: Developing asset location strategies is the third measure that you can take when attempting to reduce your tax payments. Locating assets between taxable and tax-deferred vehicles based on their tax efficiency is a proven method for increasing returns without risk. When developing a strategy for the allocation of your assets, start by evaluating the efficiency of their tax rates. Locating investments based on tax efficiency will help preserve the value of your assets without the traditional burden of taxes.
While taxes may be the single biggest expense that you face every year, you can make the most out of every tax season with these three strategies. It is not too late to reduce your 2017 tax year payments! As always, we are here to help you navigate the tax landscape smoothly and efficiently.
You should discuss any tax or legal matters with the appropriate professional.