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Tax Bracket What?  Thumbnail

Tax Bracket What?

Managing your tax bracket is a financial planning tool that involves strategically controlling your income, (to the extent you can) to decrease your overall tax liability over the years. An oft-overlooked planning tool, by forecasting your income over the next decade, it might be possible to minimize your taxes and optimize your returns by smoothing (i.e., leveling out) your income.

Here’s what you need to know. 

  • Know Your Tax Brackets: Familiarize yourself with the different tax brackets and marginal tax rates applicable to your income level. By understanding how your income is taxed at different thresholds, you can make informed decisions to minimize your tax burden.
  • Strategic Income Timing: Consider timing discretionary income such as bonuses, investment gains, or retirement distributions to optimize your tax situation. By spreading income, (including taking IRA distributions before you are required to) over multiple years, or strategically deferring it to lower-income years, you can minimize your tax bracket liability and maximize your tax savings over time.
  • Maximize Contributions to Qualified Retirement Accounts: including traditional IRAs and 401(k)s. The IRS outlines contribution limits here
  • Update Your Estate Plan: Implementing tax-efficient estate planning strategies, such as gifting assets during your lifetime or utilizing trusts. Your estate planning attorney should facilitate this process for you, based on your needs, desires, and state/federal rules and laws.
  • Charitable Giving: Donating appreciated securities directly to charitable organizations can provide a double benefit: a tax deduction for the fair market value of the donated assets and avoidance of capital gains tax on the appreciation.

By mastering tax bracket management, you can harness the power of strategic tax planning to maximize your after-tax income. To learn more, review Charles Schwab's strategies to "smooth" your annual earnings to reduce the tax impact over the long term. 

Straightforward Financial Plans

If you are looking for straightforward financial planning with a common-sense investment approach, let's talk! If you have $1 million or more of investible assets and are in or close to retirement, discuss your investment and financial plan with me on a complimentary strategy call.