The Wealth & Tax Planning Connection: Reducing Your Taxes

By Net Worth Advisory Group

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True financial optimization hinges on the accurate integration of tax planning into wealth management. 

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Moving beyond offering general advice, this article explores specific tax strategies that demonstrate how aligning tax efficiency with wise investments effectively shields your assets. Learn how you can create a solid financial foundation by having a thorough awareness of the tax implications associated with investments.

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The Vital Connection Between Wealth and Taxes

Let’s start with an overview of the vital connection between wealth management and tax planning.

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A thorough understanding of this interaction is critical for effective wealth management, where strategies not only include increasing assets but also reducing tax obligations. This involves utilizing tax-advantaged accounts, managing investments wisely to maximize after-tax returns, and implementing estate planning strategies to preserve wealth for future generations.

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A proactive, integrated approach creates wealth that is both accumulated and shielded.

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Key Tax Planning Strategies

Now let’s explore five specific tax planning strategies that exemplify the important connection between wealth and taxes:

1. Tax-advantaged accounts
   
   • IRAs and 401(k)s: To lower your current taxable income, make contributions to tax-deferred retirement accounts such as traditional IRAs and 401(k)s. Although they don’t give tax advantages up front, Roth IRAs allow for tax-free withdrawals in retirement.
   • Health savings accounts (HSAs): If you have a high-deductible health plan, contribute to an HSA. Earnings grow tax-free, contributions are tax-deductible, and withdrawals for approved medical costs are tax-free as well.
   • 529 plans: Save for education expenses with 529 plans. These plans provide tax-free growth and withdrawals for qualified education costs.  
2. Charitable giving
   
   • Donating appreciated assets: To avoid paying capital gains taxes and to qualify for a charitable deduction, donate appreciated stocks or other assets directly to a charity.
   • Qualified charitable distributions (QCD): If you’re over age 70½, you can donate to a charity from your IRA and avoid paying tax on the withdrawal amount that’s donated. 
3. Estate planning
   
   • Gifting: By transferring assets to family members, you can lower your taxable estate by taking advantage of the annual gift tax exemption.
   • Trusts: To reduce estate taxes and safeguard assets, establish trusts, such as grantor retained annuity trusts or irrevocable life insurance trusts.
4. Strategic investment management
   
   • Tax-loss harvesting: To offset capital gains and lower your tax obligation, sell investments that have lost value. This strategy can work especially well during market downturns.
   • Long-term capital gains: To be eligible for reduced long-term capital gains tax rates, hold investments for longer than one year.
   • Roth conversions: Converting money from a traditional IRA to a Roth IRA, while in a lower tax bracket, can reduce future required minimum distributions (RMDs) and reduce the amount of tax you pay on the withdrawal. 
5. Business owner strategies
   
   • Business structure: Select a business structure that reduces your tax obligation, such as a limited liability company (LLC) or S corporation.
   • Retirement plans: To maximize tax-deferred savings, set up retirement plans for your company, such as solo 401(k)s or SEP IRAs.
   • Expense deductions: To lower your taxable income, utilize all available business expense deductions.

Working With Professionals

Tax laws are complicated and constantly changing. Creating a thorough tax preparation strategy requires collaboration with a financial professional who can align your tax strategies with your financial goals. They can: 

• Provide tailored guidance according to your financial circumstances.
• Find any tax-saving options you might have missed.
• Help you navigate complex tax laws and guidelines.
• Verify that you abide by all tax laws.

Reduce Your Taxes Today!

You can significantly lower your tax burden and simultaneously enhance your wealth by both understanding the true value of the connection between tax planning and wealth management and also implementing professional strategies to leverage that connection. 

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The goal of our team at Net Worth Advisory Group is to improve the lives of our clients by delivering exemplary financial planning and wealth management advice that allows them to live the lives they have imagined.

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Call us at 801-566-6639 or schedule a complimentary, no-obligation consultation to see if we are a good fit to help you pursue your goals.

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About Net Worth Advisory Group

Founded in 2003, Net Worth Advisory Group is an independent, fee-only, CERTIFIED FINANCIAL PLANNER® and investment advisory firm located in Salt Lake City, Utah. We specialize in helping people transition from the workplace into retirement and ensuring that those who are already retired will not outlive their nest egg. Our top priority is to have clients experience a greater sense of ease with diligent, personalized wealth care and the implementation of customized financial plans and ongoing personalized asset management. We equip all clients with a comprehensive financial plan, meeting every six months to update as needed and review investment performance. Our team is passionate about providing comprehensive financial planning with the fee-only model, and we love feeling like we’re making a difference in our clients’ financial lives.

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As a NAPFA-registered fee-only advisory firm, our recommendations are untainted by a hidden agenda to sell financial products paying large commissions. Unlike our competitors at brokerage firms, insurance companies, and banks, we are compensated solely by our clients, so we are financially motivated to provide objective advice that is always in our clients’ best interests. Anyone can call himself or herself a financial planner, but only an advisor with the CERTIFIED FINANCIAL PLANNER®, CFP® designation has met the education, examination, experience, and ethical requirements mandated by the CFP® board. According to the CFP Board, there are 97,000+ CFP® professionals in 2023, representing about 1 in 3 financial advisors in the U.S. Net Worth advisors are also members of NAPFA, which only has about 4,600 advisors, and are either CFP® professionals or CFP® professionals in training.

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Net Worth Advisory Group’s mission is to significantly improve the lives of our clients by delivering exemplary financial planning and wealth management advice that enables them to live the lives they have imagined.