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5 Ways to Build a Better Tax Plan
Shared by Strong Valley on April 20, 2021
Build A Better Tax Plan
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IN BRIEF
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Taxes may be inevitable, but they're also something you have some power over. Here are five strategies to manage your tax burden going forward.

Important Disclosure: Content on our website and in our newsletters is for informational purposes only. The information provided may (or may not) directly apply to your situation. We recommend that readers work directly with a professional advisor when making decisions in the context of their specific situation.

You just finished your taxes, but it's not too early to make plans for next year.

It's important that as you build your plan, you think about some strategies to reduce or defer your taxes now or in the future. Here are some strategies to consider helping your financial plan become more tax-efficient:

1. Tax harvesting

Usually, this strategy is implemented near the end of the calendar year, but it can be done at any time. With tax-loss harvesting, you sell off holdings that have a loss position to offset the gains you've experienced from other sales.

The asset you sold is then replaced with a similar investment to maintain the portfolio's asset allocation and expected risk and return levels. It won't restore your losses, but it can ease the pain.

2. Using long-term gains and the 0% tax rate

For those who fall within the 15% tax bracket, your long-term gains are tax-free. Make it a habit to project your taxes and to look for tax opportunities every year as part of your plan.

3. Making IRA contributions

You have until the upcoming April’s Tax Day to make a Roth or traditional IRA contribution for that tax year, but why put it off? In fact, you could even use your income tax refund to fund it. Remember, a Roth creates tax-free income in the future, which is worth its weight in gold.

4. Using the "backdoor" Roth

Some people make too much money to contribute to a Roth IRA or to take a deduction on a traditional IRA. But you still can make a contribution to a traditional IRA without the deduction and later convert it to a Roth.

There's no tax due, except on growth in the account that you earn between the time of the contribution and the conversion. If you hold money in a traditional IRA for a short time only, the growth – and the resulting tax – should be small.

5. Exploring financial vehicles that can defer taxes on dividends, interest and capital gains

Tax deferral allows you to employ the triple compounding effect: It pays interest on the principle, interest on the interest and interest on the taxes that you would have paid if you were in an investment that was taxed annually.

This year – or any year for that matter – don't wait until the end of the year to think about the moves that could save you on your tax return.

Get together with your financial adviser or tax professional now to discuss a plan that will help you succeed in your goals.

The information contained within is believed to be from reliable sources. However, its accurateness, completeness, and the opinions based thereon by the author are not guaranteed – no responsibility is assumed for omissions or errors. The views expressed herein reflect our judgment now and are subject to change without notice and may or may not be updated. Nothing in this document should be construed as investment, tax, financial, accounting, or legal advice. Each prospective investor must make their own evaluation and investigation of any investments considered or of any investment strategies described herein (including the risks and merits thereof), should seek professional advice for their particular circumstances, and should inform themselves as to the tax or other consequences of any investments or services considered or described herein. Please see other important disclosures related to StrongValley.com

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