In our opinion, planning your tax strategy now, as we are halfway through the year and the year is coming to a close is crucial. We believe one of the best methods to help reduce your taxes and help increase your returns is tax planning.
What is Tax Planning?
We feel tax planning with a financial advisor can help you optimize your tax strategy.
The financial advisor will assess your current financial condition and offer recommendations based on your needs. They will seek strategies to help reduce your tax liability and help increase your returns.
Trust
One of the most common ways tax planning is utilized is through the creation of trusts. A trust is a legal entity that can own assets, such as property, investments, or cash.
Trusts can help limit estate taxes and safeguard your assets from creditors. For instance, they can help you avoid probate, which is the legal process of settling your estate after you die. Probate can be expensive and time-consuming, and it can reduce the amount of money your beneficiaries receive.
Trusts can also help you lessen your estate tax liability. Estate taxes are taxes that are imposed on the value of your estate when you die. Depending on the size of your estate, estate taxes can be substantial. By transferring your assets to a trust, it can help you reduce the value of your estate and your estate tax liability.
Types of Tax Planning Trusts
There are several types of trusts that can be used for tax planning purposes. One of the most common is the revocable living trust.
A revocable living trust is a trust you create during your lifetime. You retain control of the trust and can make changes to it at any time. When you die, the trust becomes irrevocable, and the assets are distributed according to your wishes.
Another type of trust that can be used for tax planning purposes is an irrevocable trust. An irrevocable trust is a trust that cannot be changed or revoked once it has been created. It can help reduce your income tax liability. When you transfer assets to an irrevocable trust, you remove them from your taxable estate. This can reduce your income tax liability because you are no longer responsible for paying taxes on the income generated by the assets.
Other Ways to Optimize Tax
Aside from trusts, there are many other ways to optimize your tax strategy. We feel one of the most important is to make sure you are taking advantage of all available tax deductions and credits.
Tax deductions are expenses you can subtract from your income to reduce your tax liability. For instance, if you own a home, you can deduct the interest you pay on your mortgage from your taxable income.
Tax credits are even more valuable than tax deductions because they reduce your tax liability dollar for dollar.
Another way to optimize your tax strategy is to invest in tax-advantaged accounts, such as 401(k)s, IRAs, and HSAs. These accounts offer tax benefits that can help you reduce your tax liability.
Work with Us
Cold Harbor Financial has been providing fiduciary tax planning services since 1990. Our team of experienced financial advisors can help you optimize your tax strategy and help increase your returns. We proactively address the needs of our clients, and we have built loyal and long-term relationships with them.
Schedule a consultation today!
Opinions expressed in the attached article are those of the author and are not necessarily those of Raymond James. All opinions are as of this date and are subject to change without notice. This material is being provided for information purposes only and is not a complete description, nor is it a recommendation. There is no guarantee that these statements, opinions or forecasts provided herein will prove to be correct.
All investments are subject to risk, including loss. There is no assurance that any investment strategy will be successful. Asset allocation and diversification does not ensure a profit or protect against a loss. It is important to review the investment objectives, risk tolerance, tax objectives and liquidity needs before choosing an investment style or manager.
Please note, changes in tax laws or regulations may occur at any time and could substantially impact your situation. While familiar with the tax provisions of the issues presented herein, Raymond James Financial Advisors are not qualified to render advice on tax or legal matters. You should discuss any tax or legal matters with the appropriate professional.
