With the One Big Beautiful Bill Act reshaping parts of the tax landscape, you have a timely window to improve your after-tax planning results. The goal is not just to earn more, but to KEEP more by making portfolio, charitable, and financial planning decisions with tax efficiency in mind. Here are five strategies to save $10,000 or more each year on your income taxes:
1. Employ Proper Asset Location
Holding tax-inefficient assets, such as bonds and CDs, in tax-deferred accounts when possible, and placing tax-efficient investments, like equity index funds, in taxable accounts, improves your after-tax performance. This can reduce annual taxable income without changing your long-term investment plan. As a part of your Brown Financial investment process, we help you allocate your investments in the most tax-efficient way possible. Situations vary, but saving $5,000 or more each year on your taxes using this strategy is not unusual.
2. Employ Tax-Loss Harvesting
Realizing losses in taxable accounts while reinvesting the proceeds in similar assets can offset capital gains and, in some cases, a limited amount of ordinary income. Done consistently, this can lower current-year taxes while preserving market exposure. Offsetting even $20,000 of capital gains with harvested losses could result in tax savings of at least $3,000 each year.
3. Minimize Unnecessary Turnover
Buying and selling assets to try to improve pre-tax performance can avoid taxable gains. A low-turnover, tax-aware investment approach often produces better after-tax results than a style focused only on pre-tax returns. For example, simply avoiding $30,000 of capital gains, when possible, could result in tax savings of $4,500 or more each year. By design, the Brown Financial portfolio management process is a tax-aware investment strategy that minimizes portfolio turnover whenever possible.
4. Coordinate Charitable Giving Strategies Like QCDs and “Bunching”
Qualified charitable distributions (QCDs), giving charitable gifts directly from IRAs, can be especially powerful for IRA owners age 70½ and older because they can satisfy part or all required distributions without increasing adjusted gross income. Additionally, for clients who itemize, donating appreciated securities directly or “bunching” several years of gifts into one year can also improve deductibility. Donor-advised funds can help you claim a deduction now while deciding on grants later. Your annual tax plan will help you determine the most tax-efficient giving strategy for your situation.
5. Watch IRMAA and Deduction Timing
When you are over 65, higher adjusted gross income can raise Medicare premiums two years later through IRMAA. Therefore, year-end decisions about Roth conversions, capital gains, bonus income, etc., are especially important. Avoiding IRMAA through proper planning can easily save you thousands of dollars each year.
The best tax plan is strategic, not reactive. Tax-sensitive portfolio design and a year-end review of your portfolio, income, charitable goals, and IRMAA exposure can uncover meaningful savings without changing your lifestyle or long-term objectives. At Brown Financial Advisory, we take a common-sense, tax-aware approach to investing and financial planning to help you identify opportunities and align investment, income, and charitable giving decisions with your goals. Contact us to learn how you can potentially reduce your tax burden and keep more of what you’ve earned.
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