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True Wealth – Tax Strategies

Above my office desk hangs my father’s college diploma awarding him his Certified Public Accountant degree. Among many memories, it is a reminder of all the April 15th tax days that I experienced growing up (and into adulthood) through his stories, experiences, and planning solutions. He used to wonder why so many people were so unprepared for an event that occurs the same day every year.

The tax code seems to get more complicated each year, making tax planning more important. For some, this is a paperwork function. For others, real strategies can mean real savings. While some strategies may be too late for 2020, planning ahead gives you time to build a strategy and action plan. Tax policy is likely to change due to election results of 2021 and the increasing deficits at the national, state, and local levels. Proactive planning in tax management can be beneficial in the following ways:

1. Pay Now or Pay Later: Have you considered IRA to Roth IRA conversions? While the prevailing thought is to delay paying taxes for as long as possible, how does the potential of an increasing tax bracket affect your net income? Does it change your decision to continue to delay IRA distributions (assuming no associated penalties)?

2. Entrepreneurial Spirit: In the 1980’s my aunt turned her flower arranging hobby into a successful revenue-producing business. While she may have been ahead of her time, a 2018 Forbes survey indicates that retirees are reinventing themselves. Of all respondents, 17 percent were in the 60-69 age group, 42 percent were motivated to pursue their passion and approximately 25 percent used some retirement plan money to fund their business.

3. Rental Property: With the growth of the VRBO industry, owning rental property has become an additional income generator for retirement. 4. Investment Portfolios: Portfolio management strategy should consider the length the investment is held, as holding periods greater than one year currently have tax benefits (long term capital gains) when sold. Investments sold in less than a year are taxed at normal income rates. While tax policy changes may be ahead, understanding the potential impact to your retirement dreams is all part of the planning process.

Carpe diem … The future depends on what you do today.

Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. Securities and Advisory Services offered through LPL Financial, a Registered Investment Advisor, Member FINRA, SIPC.

Jeffrey Karp, CLU®, ChFC®, CASL® founder of Karp Financial Strategies and is a registered representative of LPL Financial. More information and his blog, Permission GrantedSM can be found at www.karpfinancial.com.