How Financial Planning and Tax Planning are Linked: Part II

In a previous post, we provided some helpful tips on how to prepare your taxes early for maximum benefit. Now that you’ve organized your receipts, W2s, and 1099 forms—and met with an experienced CPA to prepare and file your return—it’s time to assess how you spent and invested your money all year.

Why Is Reviewing Your Tax Return So Important?  

How you spend and invest your finances will ultimately impact the outcome of your tax return—and how much you’re able to save for the future. Every year, the federal government imposes new tax laws and requirements that carry significant tax implications. Therefore, if you’re not staying up-to-date on these recurring changes, you could be overpaying in taxes—which means less money going into your retirement nest egg.

By meeting with an experienced independent financial planner, however, you can review your tax return and identify whether last year’s financial investments and management strategies either helped or hurt your long-term financial planning goals.

Examples of How Tax Planning Helps Financial Planning Goals:

Retirement Planning: If you’re currently enrolled in your employer’s 401(k) plan and have most (if not all) of your retirement savings held in tax-deferred accounts, your financial advisor may recommend moving some of your retirement assets to a tax-free account, such as a Roth IRA or Roth 401(k). This type of tax strategy offers you more flexibility and control in your retirement years to meet your cash flow needs.

Investment Planning: An experienced financial advisor will not only track how much your investments gained or lost throughout the fiscal year, but he/she will also provide you with strategies that work to limit your tax liability, including tax loss harvesting.

Gifts and Charitable Donations: If your child recently got married or you’ve gifted another family member a substantial amount of money during the year for different reasons, your financial expert can provide you with gifting strategies that allow you transfer funds without incurring tax penalties.

In addition, since the passing of the Tax Cuts and Jobs Act, itemizing charitable contributions to reduce your taxable income has become somewhat difficult and confusing for most people. To help you sort out the confusion, your advisor will provide you with strategies that allow you to continue making monetary gifts without acquiring penalties.   

Contact a Financial Advisor Near You:

Having a team of financial advisors is essential to achieving your long-term financial goals. Whether you are a business owner, parent or guardian, or you’re getting ready for retirement, it’s important you have an expert there to help you make the best financial investments to ensure your hard-earned money stays with you!

Contact Focus Financial today to learn more about our services for individuals and employers.

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