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Tax Planning

Providing Financial Confidence For Life&#8217;s Unexpected Events<br/>


Taxation is a major financial obligation we must meet as defined by federal or state law. But there are ways of minimizing your taxes. Tax planning is one efficient way of legally reducing your tax liabilities by utilizing available provisions such as exemptions, rebates, and other options provided.

While this topic can be overwhelming, stressful, and even confusing, tax planning should be an integral part in your financial plan. However, it's recommended to work with a financial advisor to understand the tax planning strategies involved. Feehan Wealth Management specializes in assisting individuals with tax-efficient financial planning.

Understanding Tax Planning in Investment Management

An effective tax plan must follow a precise strategy that conforms to the legal obligation while simultaneously helping you save. If you consider potential investments such as bonds, stocks, real estate, retirement plans, and others, you need to evaluate some concepts. For instance, some principles to consider are tax-equivalent yield and return of capital investment (ROC).


Taxable Equivalent Yield

This is a concept or principle used to determine returns on a taxable bond to make it equivalent to the yield of a tax-exempt bond. The calculation is a tool that investors can use to compare the returns between a tax-free investment and a taxable alternative.

ROC (Return of Capital) Investments

Return of capital (ROC) is a strategy of investing in financial instruments that return the principal amount to you, which is not considered an income and is not taxable. As an investor, your main aim should be maximizing your return on investment with minimal capital exposure and risk.

With guidance, you should consider investments that reduce your tax obligations or offer ROC. Investments that offer this type of a benefit are typically structured in the form of a partnership. 

Tax Planning for Business Owners and Investors

At our firm, we have the knowledge and expertise to help your business with tax planning while complying with tax laws. We can guide you on the various tax strategies for your business.

For example, SEP Plans for business owners are savings plans with tax advantages. The contributions made are tax-deductible. It makes such investments tax-deferred, which is a practical way of saving for retirement.

Master limited partnership (MLP) is another venture for investors existing as a publicly and privately traded limited partnership. The cash distribution in this investment is often tax-advantaged, offering attractive yields with minimal tax.

As your business advances, income tax planning becomes complex and stressful. In such cases, you need a financial advisor with the expertise, experience, and professional knowledge to help you navigate the process easily.

Tax-Advantages Strategies


These are tax planning strategies you can use with our guidance to reduce taxes. Regardless of your investment, income tax planning should be a core feature to maximize returns. Remember, minimizing taxes should always follow moral and ethical approaches that allow you to pay lower amounts without compromising the law. Here are some income tax planning strategies to help you.


Qualified Opportunity Zone Investments


Opportunity zones are an economic development tool that allows people to invest in destressed areas in the United States. Their purpose is to spur economic growth and job creation in low-income communities while providing tax benefits for investors. 


Municipal Bond Funds Investments

 

Municipal bonds are a means of lending the government money at interest over an agreed time. Upon maturity, you receive the full original amount plus interest. What sets municipal bonds apart is that the interest received is exempted from tax.

 

Life Insurance Retirement Plans (LIRP)

 

Life Insurance Retirement Plans are another tax advantage strategy to consider. LIRPs present tax benefits similar to those in Roth IRAs. This means all your cash gains after you turn 59½ years are tax-deferred. You don't pay taxes on withdrawals after an agreed age limit. 


Maximizing your 401(k) Contributions


Maximizing your 401(k) contributions is another tax advantage strategy. In many cases, the contributions are tax-deductible. Some ways of maximizing your 401(k) include diversification with a Roth 401(k), staying until you are vested, refusing to cash out early, and others. It's important for individuals to understand what your contribution limits are. Working with a financial advisor to understand what your particular contribution limits are can be beneficial for your long term financial plan.


Annuities


Annuities are investments that are backed by life insurance companies. While there are many different types of annuities, and many different investment options available – annuities can help add certainty to your retirement strategy. Annuities can offer some unique benefits: guaranteed preservation of principle, guaranteed growth/distribution of income, tax deferral, or creditor protection. Typically, an annuity may offer a combination of those benefits but not all the benefits at the same time. These are another option to consider in your tax planning strategy. Annuities in general are long-term investments.

Alternative Investments for Tax Planning

Many alternative investments like hedge funds, precious metals, private capital, and real estate investment trusts offer tax benefits not available with traditional investments. Tax benefits create savings for investors that can be reinvested. Alternative investments are typically geared towards sophisticated investors and may be illiquid. 

FAQs

What is income tax planning?

Tax planning is a strategy used by investors or business owners to minimize their taxes. At Feehan Wealth Management, we can guide you more on tax planning strategies.

What are tax planning strategies?

These are strategies or approaches of deferring most of your tax obligations to free up more cash for use in business or investment. These are legal strategies to minimize taxes.

How can I reduce my taxable income?

You can reduce your taxable income through some legally approved strategies. These may include contributing to a 401(k) plan, alternative investments, health savings account contribution, or deferred compensation plans. 

What are the benefits of working with a financial advisor to reduce my taxable income?

In any professional tax planning strategy, your CPA or Tax Professional is the most important person. With that in mind, we can work together as a team to create a holistic strategy combining the investment expertise of a Financial Advisor and the tax expertise of an Accountant. Together, we will identify which investment vehicles are best for your unique tax situation. Often times, this will lead to reduced taxable exposure.

Working with a professional can take away the stress of your financial obligations, while assisting you to establish a clear plan. When working with me, the process will be transparent and simplified. For more information and details on minimizing taxes, contact me today!

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