April 15 (this year the 18th) is a day most of us look forward to being behind us as we have either filed our annual income tax return or have extended it and have six more months to face the reality of taxes! However, it should really be a time to consider what could have been done differently to reduce taxes or more importantly what can be done for the current year and in the future. The key is treating taxes strategically and to have a plan to control or reduce one’s taxes in the future.
Example 1: For those who are currently over the age of 70, there is the potential of making charitable contributions directly from one’s IRA instead of taking the annual required minimum distribution (RMD) as opposed to including the RMD in one’s adjusted gross income and then taking a charitable deduction. Because of the complexity of the tax laws, this is a more tax efficient way to report income. It can reduce the impact of limitations based on one’s Annual Gross Income and it has the benefit of reducing state taxes as well.
Example 2: Everyone (including those not over age 70), should consider making charitable contributions using appreciated long term capital gain property because in most cases one gets a full fair market value charitable deduction without having to pay taxes on the built-in gain.
These are just two examples of strategic tax planning which should be a part of everyone’s wealth plan. Reach out to one of our Financial Life Advisors for more information and excellent advice.