Tax Preparation

Tax Preparation

Tax preparation is essential to ensuring tax efficiency. The components of a financial plan must work in unison to achieve this. Planning is important for decreasing tax liability and heightening eligibility to contribute to retirement funds. Comprehensive tax preparation includes an array of considerations like the selection of particular investments and retirement plans the timing of purchases and of income, tax deductions, tax filing status, and so on.

Save Money With a Retirement Plan While Reducing Taxes

It is possible to significantly reduce taxes by saving money with the proper retirement plan. As an example, contributing money to a traditional IRA will decrease one’s gross income amount upwards of $6,500, if certain qualifications are met. This money is invested and allowed to grow in a tax-deferred manner until the individual in question retires.

There are additional retirement plans people can also use to minimize tax liability. Large companies with plenty of employees find 401(k) plans to be advantageous. Those who participate in the plan can defer money from their paycheck right into the employer’s 401(k) plan. It is worth noting that an IRA has a much lower contribution limit than a 401(k).

Tax Loss Harvesting

It is best to think of tax loss harvesting as another avenue of tax management in regards to investing. If the holding period exceeds the span of a year, a 15% capital gains tax is levied. Holding the investment for less than a year prompts an issuing at the individual’s tax brackets.

Tax loss harvesting is helpful since it uses losses within one’s portfolio to offset capital gains. For example, consider an investor who had $5,000 of long-term capital gains across the entirety of the year. His tax liability would be $750. If the investor sold the losing investments that resulted in $5,000 in losses, the capital gain offset would equate to zero. If that losing investment were brought back, at least 30 days must pass to prevent a wash sale.

Investors should not rule out selling losing positions even if no capital gains were enjoyed during the year. It is possible to carry over capital losses for use in the future as they do not have an expiration date. These capital losses can be used at a point in the future to offset subsequent capital gains.

Debbie Taylor is the head of the tax team at Benham Advisory. Our team completes over 1,000 tax returns annually and is quite capable when helping families prepare their taxes. We offer tax preparation services at a competitive price for everyone. Our goal is to aid as many families across the country as possible.