Topic: Tax Strategies

  • Smart Tax Strategies to Keep More of Your Income in 2025

    As we enter the new year, don’t wait to implement tax strategies that could improve your financial situation. For investors, smart tax strategies can mean keeping more of what you earn and maximizing the value of your portfolio. Here are some key approaches to consider as you plan for 2025:

    1. Maximize Tax-Advantaged Accounts*

    Contributing to tax-advantaged accounts like 401(k)s, IRAs, and Health Savings Accounts (HSAs) can reduce your taxable income. For 2025, the 401(k) contribution limit is $23,500 for those under 50, with an additional $7,500 catch-up contribution for those 50 and older. A new provision allows individuals aged 60 to 63 to make an enhanced catch-up contribution of $3,750 in addition to the traditional catch-up contribution, providing a significant opportunity to boost retirement savings during those critical pre-retirement years.

    Traditional IRAs also allow for tax-deferred growth, and contributions may be deductible depending on your income and retirement plan coverage.

    Roth accounts, while funded with after-tax dollars, offer tax-free withdrawals in retirement—a great option if you expect to be in a higher tax bracket later.

    2. Utilize Qualified Charitable Distributions (QCDs)**

    If you’re 70½ or older, a Qualified Charitable Distribution (QCD) allows you to donate up to $108,000 directly from your IRA to a qualified charity. This strategy not only satisfies your Required Minimum Distribution (RMD) but also reduces your taxable income. By directing funds straight to the charity, you avoid having the distribution counted as part of your Adjusted Gross Income (AGI), which can help minimize taxes on Social Security benefits or Medicare premiums. This approach is particularly advantageous for retirees who wish to support charitable causes while managing their tax liabilities efficiently.

    3. Gift Appreciated Securities

    Instead of donating cash or selling investments to give proceeds, consider gifting appreciated stocks or mutual fund shares directly to family members or charities. By gifting to family members in lower tax brackets, they may pay significantly lower taxes on the capital gains, or possibly none at all, depending on their income level. For charitable donations, you can deduct the fair market value of the securities while avoiding the capital gains tax you’d incur if you sold them. This dual benefit maximizes the impact of your gift while offering meaningful tax savings. It’s a smart way to reduce the tax burden on highly appreciated assets.

    4. Be Strategic with Municipal Bonds

    Municipal bonds, often referred to as “munis,” offer a reliable source of tax-free interest income at the federal level. If you purchase bonds issued by your home state, you may also avoid state and local taxes. For high-income earners, the tax-equivalent yield of municipal bonds can be more attractive than taxable bonds, especially if you’re in the highest federal income tax brackets. Additionally, municipal bonds are generally considered lower-risk investments, providing steady income without increasing your taxable income—a win-win for those seeking both stability and tax efficiency. Whether you should own taxable or tax-free bonds, however, is unique to each individual and should be analyzed as such.

    5. Stay Informed on Tax Law Changes*

    Tax laws are dynamic, and staying informed helps ensures you’re prepared to adapt your strategy to new opportunities or avoid pitfalls. The individual tax cuts introduced under the 2017 Tax Cuts and Jobs Act (TCJA) are set to expire at the end of 2025 unless new legislation extends them. This includes potential increases in individual income tax rates, a reduction in the standard deduction, and a lower threshold for estate tax exemptions, which may revert to pre-2018 levels—around $7 million per individual instead of the current $14 million. By monitoring legislation, you can adjust your portfolio and tax strategies proactively.

    Take Action Now

    The key to effective tax planning is proactive management. By leveraging these strategies, you may be able to reduce your tax bill and keep more of your income in 2025. Don’t wait until the end of the year to start planning! Schedule a consultation with one of our experienced wealth managers today to discuss personalized strategies that align with your financial goals.

    Sources:

    *https://www.morningstar.com/personal-finance/your-tax-fact-sheet-calendar

    **https://www.schwab.com/learn/story/reducing-rmds-with-qcds#:~:text=What%20are%20the%20QCD%20limits,charitable%20gift%20annuity%20(CGA).

    Confluence Financial Partners does not provide tax advice. You should consult your own tax advisors before engaging in any transaction.

    Gregory Weimer
    About the Author

    Gregory developed a passion for the financial services industry early in life, drawn to the meaningful impact investing and thoughtful financial planning can have on people’s lives.

    McMurray

    724-271-8801
    gregory.weimer@confluencefp.com
    Email Greg

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    Gregory Weimer

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  • End of Year Tax Savings Strategies

    Check This List – Twice – Before Year-End

    Proactive investors know that the months before year-end are an ideal time to make any final tax-saving moves.

    While keeping in mind your long-term investment goals, meet with your advisor and coordinate with your tax professional to examine nuances and changes that could impact your typical year-end planning.

    Mind Your RMDs

    Be thoughtful about required minimum distributions (RMDs) to ensure that you comply with the rules. If applicable and you have yet to do so, take your 2017 RMD to avoid a 50% penalty on required amounts not taken. Other considerations:

    • By automating your RMDs with your advisor, ensure that you never miss this important deadline.
    • You can take your first RMD during the year you reach age 70½, or you can delay it until April 1 of the following year. Know, however, that if you delay and take two distributions in the first year after turning 70½, your income could be inflated, which may affect your tax-bracket standing.
    • Subsequent RMDs must be taken no later than December 31 of each calendar year.
    • Qualified charitable distributions allow traditional IRA owners who transfer RMDs to qualified charities to exclude the amount donated from their adjusted gross incomes, up to $100,000.
    • Be mindful of how taking a distribution will impact your taxable income or tax bracket. If you have space left in your bracket or a down income year, you may want to consider taking additional distributions.

    To Harvest or Not to Harvest

    Evaluate whether you could benefit from tax-loss harvesting – selling a losing investment to offset gains or establish a deduction of up to $3,000. Excess losses also can be carried forward to future years. With your advisor, examine the following subtleties when aiming to decrease your tax bill:

    • Short-term gains are taxed at a higher marginal rate; aim to reduce those first.
    • Don’t disrupt your long-term investment strategy when harvesting losses.
    • Be aware of “wash sale” rules that affect new purchases before and after the sale of a security. If you sell a security at a loss but purchase another “substantially identical” security – within 30 days before or after the sale date – the IRS likely will consider that a “wash sale” and disallow the loss deduction. The IRS will look at all your accounts – 401(k), IRA, etc. – when determining if a wash sale occurred.

    Manage Your Income and Deductions

    Those at or near the next tax bracket should pay close attention to anything that might bump them up and plan to reduce taxable income before the end of the year.

    • Consider making a donation. Giving to a charity can benefit a cause you care about and reduce your taxable income. Make sure your gifts are well-documented. You also can gift up to $14,000 tax free to as many individuals as you wish.
    • Determine if it makes sense to accelerate deductions or defer income, potentially allowing you to minimize your current tax liability. Some companies may give you an opportunity to defer bonuses and so forth into a future year as well.
    • Certain retirement plans also can help you defer taxes. Contributing to a traditional 401(k) allows you to pay income tax only when you withdraw money from the plan in the future, at which point your income and tax rate may be lower or you may have more deductions available to offset the income.*
    • Evaluate your income sources – earned income, corporate bonds, municipal bonds, qualified dividends, etc. – to reduce the overall tax impact.

    Evaluate Life Changes

    From welcoming a new family member to moving to a new state, any number of life changes may have impacted your circumstances over the past year. Bring your financial advisor up to speed on major life changes and ask how they could affect your year-end planning.

    • Moving, for example, can have a significant impact on taxes and estate planning, especially if you have relocated from a high income tax state to a low income tax state, from a state with an estate income tax to one without or vice versa, or if you have moved to a state with increased asset protection. Note that moving expenses themselves, however, are no longer deductible as an itemized deduction for non-military members.
    • Give thought to your family members’ life changes as well as your own – job changes, births, deaths, weddings and divorces for example can all necessitate changes – and consider updating your estate documents accordingly.

    Next Steps

    Consider these to-dos as you prepare to make the most of year-end financial moves, and discuss with your financial advisor and tax professional:

    • Manage your income and deductions, paying close attention to your tax bracket, especially if you are on the edge.
    • Remember to take your RMD, if applicable.
    • Evaluate your investments, keeping in mind whether you could benefit from tax-loss harvesting.
    • Make a list of the life changes you and your family have experienced during the year.

    *Withdrawals prior to age 59 1/2 may also be subject to a 10% federal penalty tax. RMDs are generally subject to federal income tax and may be subject to state taxes. Consult your tax advisor to assess your situation. Raymond James advisors do not provide tax advice. 

    TAX PLANNING

    November 21, 2018

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    Greg Weimer

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  • Navigating Estate Taxes: 4 Mistakes to Avoid

    In the past decade, estate tax conversations have been steadily decreasing. As the lifetime credit has climbed to unprecedented highs, many wealthy Americans have come to believe that they are safely out of Uncle Sam’s reach. However, recent history is just that, it’s recent. Historically, estate taxes have been a major factor for both middle class and high-net-worth Americans. Furthermore, estate taxes are often easy targets for adjustments when fiscal gaps need closing. This article explores why estate taxes should continue to be a priority in your wealth planning, and how you can be prepared for whatever the future may hold.

    Don’t Assume Estate Taxes Won’t Be a Problem

    The current estate tax lifetime exemption is $13.61MM per individual, or $27.22MM per couple. These numbers have become so high in recent years, that many high-net-worth Americans have come to believe that they no longer need to worry about estate taxes. My advice is to be careful, because congress can change the rules at any time. As recently as 2008, the exemption was only $2MM per individual, and it was even lower than that in the 1990s and early 2000s. Even under current law if nothing else changes, the $13.61MM exclusion will be cut in half on January 1st of 2026. When tax shortfalls arise, estate taxes are often viewed as low hanging fruit for Washington. The current exclusion level is an aberration, not the historical norm.

    Don’t Let Your Estate Documents Become Stale

    The rule of thumb for most families is to have their estate plan documents reviewed every 5 years. However, if you are a high-net-worth individual with an estate tax issue, these reviews should be much more frequent. In fact, estate tax considerations should be a part of your financial plan to be reviewed and discussed at least annually and perhaps more if there is a significant change in the law. Vehicles such as irrevocable trusts and joint insurance policies can help mitigate the risk of owing estate taxes, and these vehicles and strategies should be a part of the normal cadence of planning.

    Don’t Forget to Incorporate Charitable Giving into Your Estate Plan

    Charitable giving is one of the many strategic ways to avoid estate taxes, especially if you’ve already set aside the amounts that you plan to leave to your children. Wealth that is left to charitable organizations is not subject to the 40% estate tax. This means that instead of giving $600K to your children and $400k to the government, you give $1MM to an organization you care about, or to a foundation or Donor Advised Fund that is run by your children. Most people would prefer that their heirs decide which causes receive those funds rather than a large chunk being sent to Washington.

    Make Sure You Have the Right Team:

    Your team of professionals should include not only an excellent wealth manager who can help you plan around these issues, but also an attorney and a CPA who are experts in their fields when it comes to estate taxes. These issues are complex, and they can change quickly. Make sure that you are working with professionals who have the knowledge and the bandwidth to give these issues the attention they deserve.

    In Summary

    Estate planning is a dynamic field that requires regular attention, especially for those with significant wealth. High-net-worth individuals should not only reassess their estate plans frequently but should also consider incorporating charitable giving as part of their strategy. Be sure your planning team includes knowledgeable wealth managers, attorneys, and CPAs as this is crucial as you navigate the ever-changing landscape of estate taxes. Complacency can be costly – proactive estate planning should remain a critical element of your financial health.

    If we can be of help to you and your family, please give us a call!

    Randy Holcombe
    About the Author

    The opportunity to make a positive difference in people’s lives is why Randy chose a career in wealth management. He is passionate about helping his clients achieve their goals and cut through the constant noise of the day-to-day financial markets.

    Grove City, Pittsburgh

    724-458-5233
    randall.holcombe@confluencefp.com
    Email Randy

    Confluence Financial Partners and its affiliates do not provide tax, legal or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction.

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    Randy Holcombe

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  • Tax Planning Tips for the Charitably Inclined

    You can do well by doing some good!  Not only can giving to a charity make a positive impact, it can provide an opportunity for some tax benefits too. If you are a high-income earner or a retiree who plans on writing checks to your favorite charities, then you may benefit from these three wealth and tax planning tips you can take advantage of in the future.

    Donor Advised Funds (DAFs)

    • An immediate tax deduction can be taken for the amount donated in the year the contribution is made to the DAF.  Then, you as the donor advisor to the DAF decide which 501(c)(3) organizations (e.g., religious organization, college, hospital/clinic, community center, etc.) receive grants from the fund at any time in the future.  DAFs are a great vehicle to us if you have a big cash flow year and you know you want to make a large deductible contribution, but you aren’t sure to which organizations yet. A DAF allows you to get the deduction today and decide which charities will be ultimate beneficiaries at a later date.
    • If a client contributes long-term appreciated securities to their DAF, they can avoid capital gains tax on the appreciated portion and receive an immediate charitable tax deduction for the full market value of the gift.
    • Assets donated during the life of the client are no longer part of the client’s estate, and therefore, are not subject to probate or estate taxes. The DAF can also be named as a beneficiary to an IRA, a charitable remainder trust, or other asset.
    • Unlike private foundations, there are no start-up costs, no tax on the fund’s investment income, no individual payout requirement, and all record keeping services are included.

    Qualified Charitable Distributions (QCDs)

    • A QCD allows individuals who are 70.5 years of age or older to donate up to $105,000 per year per individual to one or more charities directly from a Traditional IRA (For 2024, QCD limit increased to $105,000 from $100,000 in 2023). The charity must be a 501(c)(3) organization. Private foundations or donor advised funds are not eligible to receive QCDs.  
    • QCDs count toward your required minimum distribution (RMD) amount. (Inherited IRAs also qualify for QCD provided you meet the age requirement.)
    • QCDs are non-taxable distributions and not included in your adjusted gross income (AGI).  This is important because regular charitable contributions do not lower AGI.  Lowering AGI can have a number of benefits, including bringing down Medicare Part-B premiums, qualifying for certain deductions, and lowering the taxable portion of Social Security.
    • Keeping your taxable income lower can help avoid elevating to the next federal tax bracket or potentially provide opportunities for other tax planning considerations.

    Donate appreciated investments.

    • Look at your portfolio as an opportunity toward donating long-term appreciated securities (e.g., stocks, mutual funds, bonds). 
    • Capital gains are eliminated when you contribute long-term appreciated assets directly to a charity (via the charity’s trustee or custodian) instead of selling the assets and donating the after-tax proceeds.
    • The charity can then sell the assets and pay no tax on the appreciated gains because of their tax-exempt status.

    In Summary

    Act today and consult your fiduciary wealth manager and tax professional to develop a plan to best align with your goals and charitable endeavors. You have an opportunity to make a positive IMPACT on charities both today and tomorrow while also receiving some tax benefits along the way. Please do not hesitate to contact us if you have any questions or if we can help in any way.    

    Zac Saunders
    About the Author

    Known for his professionalism and calming demeanor, Zac is focused on helping his clients reach their financial goals through comprehensive financial planning and unbiased guidance.  Zac and his team support and care for the overall financial well-being of their clients.

    Sewickley

    724-719-6609
    zac.saunders@confluencefp.com
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    Zac Saunders

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