Financial Planning for Families: Tax Strategies for High Income Couples

According to reports, 94% of Americans consider it their civic duty to pay their fair share of taxes. 

However, while most of us are happy to contribute what is due, this doesn’t mean you should overpay on taxes.

Many Americans aren’t claiming all of the deductions they are eligible for or carrying out comprehensive tax planning. 

If you’re one-half of a high-income couple, it is becoming more important than ever to optimize your tax strategies. With the advent of the Biden tax plan, some couples are due to face a “marriage penalty” come tax time. 

Astute financial planning for families can help you ensure joint-filing won’t open you up to a substantially larger tax liability.

Ready to find out how to practice savvy financial planning as a high-income couple? Continue reading to find out. 

Pay Extra Attention to Deductions

As we mentioned above, under the Biden tax plan high-income couples filing jointly might be subject to higher tax rates. The tax plan proposes to raise the tax rate for single filers earning $452,700 and married couples filing jointly with an income over $509,300.

Fortunately, there are a few strategies you can implement to offset this.

One of the primary ones is to pay extra attention to deductions and tax credits. Is the new tax plan is going to push the tax rate on your joint income over the $509,300 limit? If so, maximizing your deductions can assist to keep it under the bracket and retain your current tax rate. 

Have you been claiming the standard deduction? If so it might be worth considering itemized deductions. Itemized deductions are typically most advantageous for higher-income taxpayers. 

To ascertain which method results in better tax savings you will need to add up your allowed deductions for the year. You can then calculate whether the total is higher than the standard deduction you can claim. 

Unsure which deductions you are eligible for? If yes, the best course of action is to consult a tax planning professional

Besides looking at your current deductions, they will also be able to evaluate whether they are any additional deductions you can take advantage of. Such as maximizing your 401(k), utilizing defined-benefit plans, or leveraging charitable donations.

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Take Advantage of Charitable Donations

Speaking of charitable donations, these can play a valuable role in financial planning for families.

Strategic qualifying charitable donations keep you from migrating to a higher tax bracket. What’s more, married couples can be eligible for higher charitable donations deductions. 

One of the most advantageous ways to make charitable donations is through donating appreciated assets rather than cash to qualifying charities. For instance, let’s say you have held stocks long-term that have appreciated substantially.

Turning them into a charitable contribution can reduce your overall income for the year. Besides this, you likely won’t need to pay capital gains tax on the proceeds of selling the stocks. 

Increase Your Equity Exposure

Another valuable family financial planning strategy is increasing your equity exposure. Under the current tax system gains derived from equity investments are taxed at lower rates than income tax brackets. 

To put this simply, the money you make investing in stocks, bonds, and other equity-based assets will usually attract a lower tax rate than income you earn from other sources. 

For example, the current long-term capital gains tax at higher tax brackets is 20%. In contrast, the new Biden tax plan puts the income tax rate for joint filers earning more than $509,300 at 39.6%. 

This is the reason behind the famous statement from Warren Buffet that he pays less tax than his secretary. 

Shifting your earnings from income-generating sources to equity-based assets can substantially reduce your overall tax liability. This isn’t something one can generally achieve overnight. However, it is still a valuable personal and family financial planning strategy to consider. 

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Create a Structure to Manage Your Assets

If you own a number of assets, you can also look into creating a business structure for their management. Creating a business entity for the management of your assets can allow you to deduct certain expenses. 

If you already own a business entity, you can also consider restructuring it to be more tax advantageous. For example, an A-corp attracts a lower top tax rate than an S-corp. Pass-through entities may also now qualify for a deduction of up to 20% of business income. 

Consider Income Deferral or Acceleration

Income deferral and acceleration is another impactful strategy when it comes to financial planning for families. 

One of the key benefits of personal and family financial planning is it allows you to forecast your income and expenses ahead of time. In some situations, you might be able to influence the timing of these to ensure the best tax-related outcome. 

For example, to reduce the chance of experiencing the “marriage penalty” next tax year, you might find it advantageous to realize certain gains within this tax year rather than the next. 

Practice Active Tax Planning Throughout the Year

One of the key elements of thorough financial planning is to make it an ongoing practice throughout the year. This is especially important for financial planning for families in high-income brackets. 

Tax planning is not a retroactive thing. It has to be done ahead of time in order for you to achieve results. Therefore, ensure that you engage in tax planning before the beginning of each tax year

You should also adjust your tax plan throughout the year in response to any changes in earnings and assets. 

Leverage the Expertise of a Tax and Wealth Management Professional

If you’re a high-income couple, the financial planning process can be relatively complex. Balancing your income and qualifying deductions becomes more involved the more assets and sources of income you have. What’s more, the higher your tax bracket, the higher the stakes are.

To ensure you are creating a comprehensive tax plan, it is best to engage the services of a tax and wealth management professional. 

They will be able to formulate an effective tax plan for the coming year. They will also help you look into the future and carry out savvy estate and retirement planning

Do You Need Expert Financial Planning for Families?

Are you in need of expert financial planning for families? If you are filing jointly, it is more important than ever that you have professional tax planning guidance. 

Here at Bogart Wealth, we specialize in tax and wealth planning. Our mission is to give our clients peace of mind by preserving and maximizing inter-generational wealth. If you’re not sure what measures you need to take for the next tax year, we are here to help. Contact us today to discuss your needs.

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