Annual tax planning is crucial for maximizing your wealth and ensuring your financial goals are met. Here are five advanced tax-saving strategies specifically tailored for you:
Donor-Advised Funds (DAFs)
Donor-advised funds offer a strategic way to manage charitable giving while maximizing tax benefits. By contributing to a DAF, you can immediately receive a tax deduction for the full amount of your donation even if distributions to charities are made over time. This allows you to bunch charitable contributions into specific years and easily give appreciated assets instead of cash.
Qualified Charitable Distributions (QCDs)
For retirees aged 70½ or older who have traditional IRAs, qualified charitable distributions (QCDs) can provide significant tax savings. QCDs allow you to transfer up to $100,000 annually from your IRA to qualified charities. This distribution counts toward your required minimum distribution (RMD) but is excluded from your taxable income, effectively reducing your adjusted gross income (AGI).
Gifting Appreciated Assets to Children
If you have appreciated assets, such as stocks or real estate, gifting them to your children or other beneficiaries can be a tax-efficient strategy. By making gifts of appreciated assets instead of cash, you may lower your taxes this year and in future years and will avoid probate at your death since the assets have been transferred out of your estate. Be mindful of gift tax implications and consult with a tax advisor or estate planning attorney for guidance.
Managing IRMAA Thresholds
Income-related monthly adjustment amounts (IRMAAs) can significantly increase Medicare premiums for retirees with higher incomes. By strategically managing your income, such as through Roth IRA conversions or minimizing taxable withdrawals from retirement accounts, you can potentially stay below IRMAA thresholds and avoid higher Medicare Part B and Part D premiums.
Charitable Bunching
Charitable bunching involves consolidating several years of charitable contributions into a single tax year to exceed the standard deduction threshold. If your charitable contributions are enough to allow you to reach but not exceed the standard deduction, this strategy allows you to itemize deductions in specific years, maximizing the tax benefits of your charitable giving and leveraging the higher standard deduction. DAFs are useful for bunching charitable contributions.
These strategies are complex and require careful planning to ensure they align with your overall financial goals. Brown Financial Advisory is committed to providing an annual tax review that includes these strategies and more and we encourage you to discuss them with your tax advisor. By incorporating these advanced tax-saving strategies into your financial plan, you can preserve more of your wealth, have greater financial security, and achieve more peace of mind. Discover our True Planning Cycle, designed to address every area of your financial life, from taxes and estate planning to retirement and beyond.
Sources:
1. Source: https://www.kiplinger.com/taxes/what-to-do-before-tax-cuts-and-jobs-act-tcja-provisions-sunset, https://www.taxpolicycenter.org/briefing-book/how-did-tcja-change-standard-deduction-and-itemized-deductions#:~:text=The%20TCJA%20eliminated%20or%20restricted,because%20of%20the%20tax%20overhaul.