Financial planning services can help you develop strategies to manage your income and expenses, as well as plan for the future. Working with an advisor, you can establish plans for both long-term and short-term success. The services cover budgeting, tax planning, investing, and estate planning. Here is how financial planning services help maximize tax efficiency:
Capital Gains Management
Capital gains management involves controlling when and how you sell your investments and assets to maximize their value. This is done to reduce the taxes you pay on profits. It also distinguishes between short-term and long-term profits. Financial planning encourages holding assets for a more extended period to benefit from lower tax rates and avoid costly short-term capital gains. In case of losses, you can use them to offset your profits and reduce the taxes on your gains.
Tax-loss Harvesting
The tax-loss harvesting strategy involves selling investments that have declined in value. This creates a loss that reduces the taxes owed on investment earnings. Once you sell the investment, you purchase a similar one to maintain a balanced investment portfolio. This puts you in a position to access future potential gains. You can save extra losses and use them in future years to keep reducing your taxes.
Retirement Contributions
Your financial advisor can help you create savings accounts for your retirement. These accounts are designed to help you save money while working, so you can have enough to live on after you retire. You can make regular contributions from your paycheck. Many employers will match them to help grow your savings. When you put money in a traditional 401(k), it is taken out of your pay before taxes are calculated. This lowers your taxable income for the year. For a Roth IRA, you pay taxes on your money before contributing, but you won’t pay taxes when you take it out in retirement.
Estate Tax Strategies
Financial planning services utilize estate tax strategies to organize your assets so that when you pass away, your beneficiaries pay lower taxes on what they inherit. Estate tax strategies involve utilizing trusts, making gift contributions to family members or charitable organizations, and taking advantage of tax exemptions. Annual gifting helps you gradually transfer your wealth without triggering gift taxes, while creating irrevocable trusts allows you to move assets out of your taxable estate.
Timing Expenses
Your financial advisor assists with timing expenses to help you decide when to pay certain costs. This is done to help you maximize the benefits when filing your taxes. If you pay certain business expenses before the end of the tax year, you can claim the deductions sooner to lower your taxable income. If you expect to be in a higher tax bracket in the coming year, you can delay expenses to claim bigger deductions when your tax rate is higher.
Learn More About Financial Planning Services
A financial advisor assesses your earnings and expenses to develop strategies to help you reduce the taxes that you pay. Their services revolve around budgeting, large purchase funding, cash flow analysis, and college planning. Contact a reputable financial planning specialist to learn more about their services.