Let’s say you are in business and making all the right moves. You have your retirement plan. Every single year, like clockwork, you put money into your traditional IRA or 401(k). This is what you are supposed to do, after all. You are imagining sipping mojitos on the beach in Florida as you spend your well-earned retirement enjoying the sunset.
Then the tax bill comes. Uncle Sam takes his cut, and it is bigger than you expected. The dream of your beach house in Sarasota starts fading, and it looks like you will only be able to afford a condo in Gary, Indiana.
At Tax Reduction Concierge, we can be your experts. Check out our list of ways you can avoid a tax bomb.
Don’t Use a Typical IRA
If you have a traditional IRA or a 401(k), you will be facing a massive tax bite when it comes time to actually start seeing returns. There are a few different options that you have in front of you. You can take the route that the billionaire Charlie Munger did, and switch from a traditional IRA to a Roth IRA. Some people may also consider buying a qualified longevity annuity contract using 25% of the 401(k) or IRA savings. A deferred annuity product, with investment earnings, may also be useful.
In this blog post, we are only looking at this from a basic level. There are far more advanced financial tools that you can use to help avoid a dreaded tax bomb. You should keep in mind, however, that in general Roth IRAs are more tax friendly than traditional IRAs.
Avoid Mutual Funds
Most mutual fund managers never check their tax ratio. Even fewer investors check their fund’s tax cost. This is a poor decision. Mutual fund tax distribution dates roll around once a year, and you may be paying more than you have to.
Do Proper Estate Planning
The new tax bill lifted the exemption from the 40% tax to $11.2 million, up from $5.6 million. If you are making over this amount, however, this is of little consolation to you. There are a few different methods you have of avoiding a tax bomb once someone passes. It may prove worthy to consider a trust, or a similar form of investment.
Making the Right Deductions
One of the best ways to get the IRS to come down on you is to make some iffy deductions. When you deduct something that you probably should not have, the IRS will come down on you. And when they do, they are not going to pull that many punches. An IRS audit means that you may be on the hook for certain items that you were not even aware of.
Using the Right Tax Advisor
A less than reputable tax assistant may have a whole bunch of tricks up their sleeves than have immediate benefits. It is useful to look into what they are doing, and double-check their numbers. Short-term gain could mean long-term pain. Making sure you have the right person helping you could set you up for prolonged growth.
Outsourcing solutions may not work the way you intend them to. There are many other financial activities you can do, but it is always advisable to have a tax advisor who works within the confines of the law.
At Tax Reduction Concierge, we use innovative and law-compliant strategies to help people boost their profitability. Our tactics include the use of captive insurance, leveraged retirement plans, and much more. If you have any questions about your taxes, please contact us today.