Guide to Tax Optimizations

Taxes are an obligation no one can avoid. Tax liabilities can impact your financial plans in many ways, but advisors using a customized financial plan platform can help you optimize your taxes to work in your favor.

Tax optimization is the process of reducing your tax liabilities while maximizing tax savings. The goal is to minimize how much you owe through careful strategizing and plan implementation.

Common Tax Optimization Techniques

There are many ways you can optimize your tax situation. However, it would be best if you always went to a professional to do so. Taxes are complex, and you need someone well-versed in finances and tax laws to ensure you're doing everything you can without crossing the line.

An advisor using a customized financial plan platform has the tools and expertise to make it happen. Here are a few techniques that your advisor may recommend.

Carefully Timed Activities

Timing is everything with taxes. Your tax liabilities cover an entire year, so you can be strategic about certain activities to maximize your savings. One example is selling off investments.

You can use tax losses to offset a specific amount of losses every year. It's also possible to carry unused losses for a future tax period.

Another thing to consider is the timing of charitable donations. Bunching several years' worth of charitable contributions into one could push you over the itemized deduction threshold, giving your advisor more ways to help you save!

Taking Advantage of Deductions

Deductions are a big part of tax optimization. The IRS offers many ways to reduce your taxable income, and a seasoned advisor can help you find opportunities that help you.

Most people take the standard deduction. But some careful planning may let you itemize those deductions. That could lead to bigger savings if you have the documentation to prove tax-deductible expenditures.

You can also use your contributions to tax-advantaged holding accounts. Speak with your advisor about which accounts are worth opening and contributing to. Generally, you can deduct what you put into individual retirement accounts, health savings accounts and more.

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