Tax Saving Strategies

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Frequently Asked Questions


  • What’s the best way to borrow to make consumer purchases?
  • What special deductions can I get if I’m self-employed?
  • Can I ever save tax by filing a separate return instead of jointly with my spouse?
  • Why should I participate in my employer’s cafeteria plan or FSA?
  • What’s the best way to give to charity?
  • I have a large capital gain this year. What should I do?
  • What other tax-favored investments should I consider?
  • What tax-deferred investments are possible if I’m self-employed?
  • How can I make tax-deferred investments?
  • What can I do to defer income?
  • Why should I defer income to a later year?
What’s the best way to borrow to make consumer purchases?

For tax years 2018 through 2025, interest on home equity loans is only deductible when the loan is used to buy, build or substantially improve the taxpayer’s home that secures the loan. Prior to 2018, many homeowners took out home equity loans. Unlike other consumer-related interest expenses (e.g., car loans and credit cards), interest on a home equity loan was deductible on your tax return.

What special deductions can I get if I’m self-employed?

You may be able to take an immediate Section 179 expense deduction of up to $1,160,000 for 2023 ($1,080,000 in 2022), for equipment purchased for use in your business, instead of writing it off over many years. There is a phaseout limit of $2,890,000 in 2023 ($2,700,000 in 2022). Additionally, self-employed individuals can deduct 100 percent of their health insurance premiums. You may also be able to establish a Keogh, SEP, or SIMPLE IRA plan and deduct your contributions (investments).

Can I ever save tax by filing a separate return instead of jointly with my spouse?

You sometimes may benefit from filing separately instead of jointly. Consider filing separately if you meet the following criteria:

  • One spouse has large medical expenses, miscellaneous itemized deductions, or casualty losses.
  • The spouses’ incomes are about equal.

Separate filing may benefit such couples because the adjusted gross income “floors” for taking the listed deductions will be computed separately.

Why should I participate in my employer’s cafeteria plan or FSA?

Medical and dental expenses are deductible to the extent they exceed 7.5 percent of your adjusted gross income or AGI. If your employer offers a Flexible Spending Account (FSA), Health Savings Account, or cafeteria plan, these plans permit you to redirect a portion of your salary to pay these expenses with pretax dollars.

What’s the best way to give to charity?

If you’re planning to make a charitable gift, giving appreciated long-term capital assets generally makes more sense instead of selling the assets and giving the charity the after-tax proceeds. Donating the assets instead of the cash avoids capital gains tax on the sale, and you can obtain a tax deduction for the full fair-market value of the property.

I have a large capital gain this year. What should I do?

If you also have an investment on which you have an accumulated loss, it may be advantageous to sell it before year-end. Capital gains losses are deductible up to the amount of your capital gains plus $3,000 ($1,500 for married filing separately). If you are planning on selling an investment on which you have an accumulated gain, it may be best to wait until after the end of the year to defer payment of the taxes for another year (subject to estimated tax requirements).

What other tax-favored investments should I consider?

For growth stocks you hold for the long term, you pay no tax on the appreciation until you sell them. No capital gains tax is imposed on appreciation at your death.

Interest on state or local bonds (“municipals”) is generally exempt from federal income tax and tax by the issuing state or locality. Therefore, interest paid on such bonds is somewhat less than that paid on commercial bonds of comparable quality. However, for individuals in higher brackets, the interest from municipals will often be greater than from higher-paying commercial bonds after a reduction in taxes.

For high-income taxpayers who live in high-income-tax states, investing in Treasury bills, bonds, and notes can pay off in tax savings. The interest on Treasuries is exempt from state and local income tax.

What tax-deferred investments are possible if I’m self-employed?

Consider setting up and contributing as much as possible to a retirement plan. These are allowed even for a sideline or moonlighting business. Several plans are available: an individual or self-employment 401(k) plan, a SEP (Simplified Employee Pension), and the SIMPLE IRA plan.

How can I make tax-deferred investments?

Through tax-deferred retirement accounts, you can invest some of the money you would have otherwise paid in taxes to increase the amount of your retirement fund. Many employers offer plans where you can elect to defer a portion of your salary and contribute it to a tax-deferred retirement account. For most companies, these are known as 401(k) plans. For many other employers, such as universities, a similar plan called a 403(b) is available.

Some employers match a portion of employee contributions to such plans. If this is available, you should structure your contributions to receive the maximum employer-matching contribution.

What can I do to defer income?

If you are due a bonus at year-end, you may be able to defer receipt of these funds until January. This can defer the payment of taxes (other than the portion withheld) for another year. If you’re self-employed, defer sending invoices or bills to clients or customers until after the new year begins. You can also defer some of the tax, subject to estimated tax requirements.

You can achieve the same effect of short-term income deferral by accelerating deductions, for example, paying a state-estimated tax installment in December instead of the following January due date.

Why should I defer income to a later year?

Most individuals are in a higher tax bracket in their working years than during retirement. Deferring income until retirement may result in paying taxes on that income at a lower rate. Deferral can also work in the short term if you expect to be in a lower bracket in the following year or if you can take advantage of lower long-term capital gains rates by holding an asset a little longer.



IMPORTANT NOTE

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ONBOARDING & DISCOVERY

Begin with a Kick-Off Call to review your goals. Over 30-45 days, work with your Advisor to identify opportunities and develop a tax plan to minimize your tax bills.

THE PLANNING PHASE

Over 30-45 days, collaborate with your Advisor to develop a tax plan. You’ll receive a written summary of strategies, their benefits, and action steps to minimize your tax bills.

ONGOING SUPPORT

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