Even though it’s common for clients to wait until April before trying to reduce their income taxes, being proactive earlier is often better. Thinking through the available options while the year is young not only gives more time to implement choices, it can also provide more opportunities.
What makes a strategy tax-efficient can change as new legislation is introduced. Recent tax law changes contained tax repeals, extenders, and retirement plan modifications that may affect financial strategy. Some new legislation includes the SECURE Act of 2019, CARES Act of 2020, the Consolidated Appropriations Act of 2021, and the Infrastructure Investment and Jobs Act – signed late in 2021.
One of the first steps a client can take to reduce their tax risk is to review their latest income tax return. This review can help identify options for financial strategies to improve their long-term income tax outcome.
A financial professional, along with the client’s tax advisor, can help the client identify what strategies might be appropriate for their financial situation.
Here are a few strategies the client’s financial team could suggest to lower the tax burden and help with retirement savings.