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Tax time: takeaways for you

With tax season barely in the rearview, there’s no better time to reflect and consider how you can be better prepared when next year’s deadline rolls around. Certainly, there are lessons we can learn and things to be mindful of as we continue through 2022.

We wanted to share five considerations to help you set yourself up for future tax success.

Be mindful about required minimum distributions (RMDs). Investors who reach a certain age (70 1/2 for those born before July 1, 1949, and 72 for those born after) are required to take RMDs from their IRAs. You’ll face a 50% tax penalty on amounts not withdrawn, so be sure to stay abreast of your financial plan to ensure you’ve met your obligations. These withdrawals can be automated so you don’t miss deadlines. A tax professional can help you determine how taking a distribution will impact your taxable income and marginal tax bracket. If you are in a low marginal tax bracket, you may want to take an additional distribution to maximize your tax savings.

Manage income and deductions. As you’re dialing back at work and planning to retire, you may expect to be in a lower tax bracket next year. With this in mind, you may want to consider postponing income and accelerating deductions as year-end nears. Pay close attention to your marginal tax bracket and if deferring some income would lessen your tax burden. If it’s possible, you may want to consider withholding a bonus, for example, until next year when you’ll be in a lower bracket. You’ll save on this year’s higher tax bracket. Additionally, consider accelerating deductions however you can, like making philanthropic donations and prepaying property taxes, to get a larger tax benefit while your income is higher.

Consider charitable contributions early on. Individuals who want to donate significant amounts can reduce tax burdens – but you should do so strategically. If you’re considering making a generous charitable gift to reduce taxes, it’s worth considering a donor advised fund, which allows you to receive an immediate federal income tax deduction even if the funds are not disbursed until later years. Another strategy that your tax professional may consider if you don’t have enough deductions to itemize is to make a large charitable gift equal to the total of donations you would’ve made over several years to take advantage of the ability to itemize next year.

Consider risk in your investments. It’s good practice to reconsider your investment options as your risk tolerance changes over time – especially in retirement. This includes weighing which sources to begin building your income stream from based on how they’re taxed. Treasury bonds, for example, are exempt from taxes at the state and local level, while municipal bonds aren’t taxed at the federal level. Because each person’s situation is different and the savings and investment vehicles involved vary, the guidance of a financial advisor can be crucial to creating an income strategy that factors in taxation and preserving funds for the long term.

Document any life changes. Life happens and it usually affects your taxes. Think a wedding or divorce or moving to a different state … they all affect your year-end tax planning. Share life changes with your professional advisors as they happen so you can plan for them accordingly next year. There might be actions you can take while you still have months left in the year to counteract any negative tax consequences. Moving is especially important to consider as some states have state income taxes and others don’t. And some states are high-income tax states, others low. Think about your family members’ life changes too – they may affect filing next year.

If you’d like to discuss any of these tax tips in further detail and learn how they apply to your situation, feel free to contact your Wealth Advisory Group of DiLauro Wracher & Thomas advisor or to schedule a no-obligation discovery meeting please contact us via this website. We’d love to have a conversation and help you feel better prepared when tax time rolls around again next year.


Material prepared by Raymond James for use by its advisors. Raymond James does not provide tax services. Changes in tax laws or regulations may occur at any time. You should discuss any tax or legal matters with the appropriate professional.

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