Financial planning can reduce your tax liability

Financial planning can reduce your tax liability

On Behalf of | Jun 27, 2023 | Tax Planning

Paying taxes in New York is a reality for every home and business owner. The loss you feel when forking over the required earnings can be almost too much to bear. This is why you should be aware that there are ways to mitigate your total level of tax. You can do this through a combination of methods that fall under financial planning.

Investment planning builds your capital base

Tax liability can be managed more effectively when you have investments in place to shelter some of your capital. The key is to utilize methods that offer you the best protection against the effects of the capital gains tax. For example, you can get in the habit of holding investments longer than a year. This gives you access to a better capital gains tax rate.

You can also make a series of highly tax-efficient investments. These may include exchange-traded funds (ETFs). These will afford you a much lesser number of turnover events than traditional mutual funds. Finally, you can make a practice of harvesting tax losses to strategically offset some of your annual capital gains.

Make the best choices for retirement planning

You can adopt several planning strategies to keep your liability at a desired low. One of them will be planning your retirement as efficiently as possible. You can begin by making the maximum contribution to your 401(k).

You should also consider contributing as much as you can each year to a traditional or Roth IRA. If available, you can combine a Health Savings Account (HSA) with a high-deductible health plan. These will help keep your tax liability low even as you successfully maximize the total level of your available funds.