Strategic Tax Planning
Tax planning is an important component of a long-term financial plan, especially when you're facing a major financial decision. TrueVector Wealth Advisors can review your situation and prepare a comprehensive financial plan with an emphasis on reducing your lifetime taxes.
We specialize in creative tax strategies that m result in a significant tax reduction under special circumstances. Examples of these opportunities include:
- Selling a property or business
- Owning a highly appreciated stock position
- Running a profitable small business
- Drawing from savings during early retirement years
We offer project-based financial planning for a fixed fee, which means you do not have to commit to a long-term engagement, and you do not have to transfer assets to our management. In cases where it would be beneficial to your financial plan, we do offer investment management as a separate, optional service.
Opportunity: Selling a property
If you are planning to sell an asset that has appreciated significantly in value, you are probably aware of the large potential tax cost. Recognizing all the gain in a single year could push you into the highest federal and state income tax bracket.
Depending on the asset being sold, there are techniques that may allow you to spread out the gains over multiple years. Recognizing a smaller amount of gains each year could keep you in a lower tax bracket and reduce the total tax cost. Delaying when the taxes needed to be paid also creates more time to seek out tax loss harvesting opportunities to further reduce the tax cost.
Strategies to defer capital gains come with additional complexity, overhead costs, and liquidity restrictions. TrueVector Wealth Advisors can review your opportunity and show you if any of these strategies align with your financial goals.
Opportunity: Owning a highly appreciated stock position
Owning a large position of a highly appreciated stock can be a blessing and a curse. Obviously, the investment growth can be a major contribution to your financial health, but the risk of having so much wealth tied up in a single company can be a source of worry and the tax cost of selling is often unpalatable.
Fortunately, there are strategies that can help diversify away from a concentrated stock position at a reduced tax cost. Some strategies take time to achieve full diversification, but have more flexibility. Other strategies can achieve immediate diversification, but come with liquidity restrictions. TrueVector Wealth Advisors can review your situation and determine which diversification strategies would best match your financial goals. In some cases, we can provide specialized investment management that focuses on risk management and tax reduction.
Opportunity: Small business owner
Being a small business owner gives you a lot of control over your financial outlook, and tax planning is a significant area of opportunity. There are many possible techniques, but one overlooked tax planning tool for small business owners is retirement plan design.
A well-designed retirement plan could potentially allow you to redirect a large amount of your annual business income into pre-tax retirement accounts, reducing your current income taxes. Those savings will eventually be taxed when withdrawn in retirement, but that could be during a period when your tax bracket is lower.
Retirement plans must meet non-discrimination standards, so it is important to evaluate a plan design against your specific business situation to ensure that the plan is compliant and that the benefits outweigh the costs.
Opportunity: Early retiree
For most people, part of building up a retirement nest egg includes contributing to IRAs or 401(k)s. Withdrawals from those accounts are usually taxable in retirement and federal law requires you to take minimum distributions after a certain age. Without planning, these taxable required minimum distributions could put you in a much higher tax bracket and could also result in large income-related increases to your Medicare premiums.
TrueVector Wealth advisors can prepare a long-term financial plan that recommends the best years to draw down your IRAs, when your marginal tax rate is lower. We can also craft a charitable giving strategy to support your charitable goals in the most tax efficient way. Even though some taxable income may be shifted to earlier years and result in earlier tax payments, your total lifetime tax cost could be reduced.