Financial Planning

Your finances don’t exist in a bubble. Every decision you make and every milestone you reach impacts your financial situation. Even within your finances, there are multiple pieces that affect each other, such as income tax planning, cash flow, risk management, investment planning, estate planning, retirement strategies, education planning, and more. That’s why tax planning won’t be successful unless it’s part of a comprehensive financial plan.

When you have a financial plan that addresses every area of your life and is customized to your unique situation, you may find tax minimization opportunities that you didn’t see before. Here are a few examples of how financial planning can reduce your tax burden.

If you understand the rules of the game, you will have a much higher success rate at winning the game. The same is true for understanding tax law. If you understand tax law and the benefits available to taxpayers, then when it comes to “winning the game” of reducing your tax bill, you will be that much better off.

When working with your advisor to create your financial plan, retirement planning will often be a key point of conversation. By stress-testing your plan, you can quickly see if your current retirement accounts, savings rates, and other assets will be adequate for the retirement lifestyle you desire.

A direct way to reduce your tax bill is to contribute money into tax-deferred savings accounts, such as a 401(k) or IRA. But in order to maximize your savings, you will need to determine both your current cash flow needs and your ideal retirement income. A financial plan will look at both factors and determine the best way to use your tax-deferred savings accounts to save you money both now and in the future.

The planning behind successfully leveraging the triple-tax savings of Health Savings Accounts (HSAs) cannot be done without thinking about the whole picture. It may sound too good to be true, but HSAs have no federal income tax, no state or local taxes, and no Federal Insurance Contribution Act (FICA) taxes. If you are eligible for an HSA, your money will be tax-deferred and can be withdrawn tax-free to pay for medical expenses. Using an HSA to reduce your tax bill is a long-term strategy that only provides tax benefits if done correctly and as part of a comprehensive plan.

Donating to charity can be personally fulfilling, but there are also tax benefits to be harnessed that financial planning can help you attain. For example, charitable giving is tax-deductible, but only if you itemize your deduction. When you take the standard deduction, your charitable giving has no effect on your taxes.

If you want to receive a tax benefit for your generosity, you can combine all your giving and make donations every other year. In year 1 you wouldn’t donate anything and take the $12,000 standard deduction. In year 2, you would give double and be able to itemize because your giving pushed you over the standard deduction amount. You can also take advantage of donor-advised funds (DAFs) to make this happen.

When you have a financial plan, you can work your charitable giving into the big picture so that you receive the maximum tax benefit possible. A financial professional can walk you through your options.

A tax-planning strategy that stems from your financial plan has the potential to provide the most tangible and real benefit. That benefit results in not just a year-by-year tax reduction, but possibly lifetime savings that could positively impact your overall financial situation. A financial plan can help you achieve that. If you’d like to take a step toward financial planning and reducing your tax bill, Cypress Private Wealth would love to help. Contact our office today to schedule a complimentary meeting!