Rebecca Acorn, CPA contributed to this month's issue of the New Hampshire Business Review on the topic of Smart Investing with some helpful tips for investors that will help them maximize their tax benefits.
"Q: What are some tips for making tax-efficient investment decisions?
A. For those who haven’t started to invest, you need to set goals and start small. Take the first step by including investing in your budget. Consider setting up automatic transfers into a taxable investment account and/or automatic deductions from your paycheck into your employer tax-deferred retirement account. If you don’t see the cash in your checking account, you are less likely to spend that money. If your employer offers a 401(k) match, take full advantage of the match; it’s free money for your retirement. Consider both tax-deferred retirement and Roth plans. With a deferred plan, payment of tax is deferred until withdrawal. Under a Roth plan, tax is paid now, but distributions are tax-free. Most people won’t win the Powerball (a one in 292.2 million chance) or find that diamond in the rough penny stock (odds unknown) — slow and steady always wins the race.
Work with professionals who collaborate. An investment advisor will guide you through decisions such as making investments that match your risk profile and rebalancing your investments, however, if you’re not consulting with your tax accountant then you might be losing some of your wealth to your least favorite Uncle (Sam).
For those that have sizable retirement/investment account balances, you can consider the most tax-advantageous way to pass along those funds to your charitable causes.
When you reach a certain age, you will be required to withdraw an amount from your retirement account. Under current laws (2024), you can have up to $105,000 of this required minimum distribution (RMD) from your retirement account distributed directly to a qualified charity. This donation reduces your taxable income by the amount contributed. If in the 35% bracket, you could save up to $36,750 in taxes and your favorite charities would receive $105,000.
Another strategy is to donate appreciated stock from your taxable investment portfolio to the charitable organization of your choice. If you donate the stock, you can receive a charitable deduction based on the fair market value of the investment without paying tax on gains, and the charitable organization gets the full value of the stock in their portfolio. If you do not routinely itemize your tax deductions, you might consider bunching deductions together into one year to be able to itemize benefits from a larger deduction. Please discuss with your tax adviser to understand the limitations, they will be happy to help you optimize your deductions."
For more on this topic, click here to read the full article.
A. For those who haven’t started to invest, you need to set goals and start small. Take the first step by including investing in your budget. Consider setting up automatic transfers into a taxable investment account and/or automatic deductions from your paycheck into your employer tax-deferred retirement account. If you don’t see the cash in your checking account, you are less likely to spend that money. If your employer offers a 401(k) match, take full advantage of the match; it’s free money for your retirement. Consider both tax-deferred retirement and Roth plans. With a deferred plan, payment of tax is deferred until withdrawal. Under a Roth plan, tax is paid now, but distributions are tax-free. Most people won’t win the Powerball (a one in 292.2 million chance) or find that diamond in the rough penny stock (odds unknown) — slow and steady always wins the race.
Work with professionals who collaborate. An investment advisor will guide you through decisions such as making investments that match your risk profile and rebalancing your investments, however, if you’re not consulting with your tax accountant then you might be losing some of your wealth to your least favorite Uncle (Sam).
For those that have sizable retirement/investment account balances, you can consider the most tax-advantageous way to pass along those funds to your charitable causes.
When you reach a certain age, you will be required to withdraw an amount from your retirement account. Under current laws (2024), you can have up to $105,000 of this required minimum distribution (RMD) from your retirement account distributed directly to a qualified charity. This donation reduces your taxable income by the amount contributed. If in the 35% bracket, you could save up to $36,750 in taxes and your favorite charities would receive $105,000.
Another strategy is to donate appreciated stock from your taxable investment portfolio to the charitable organization of your choice. If you donate the stock, you can receive a charitable deduction based on the fair market value of the investment without paying tax on gains, and the charitable organization gets the full value of the stock in their portfolio. If you do not routinely itemize your tax deductions, you might consider bunching deductions together into one year to be able to itemize benefits from a larger deduction. Please discuss with your tax adviser to understand the limitations, they will be happy to help you optimize your deductions."
For more on this topic, click here to read the full article.