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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.

IMPORTANT DISCLOSURE INFORMATION:
Please remember that past performance is no guarantee of future results. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by Bogart Wealth, LLC [“Bogart Wealth”]), or any non-investment related content, made reference to directly or indirectly in this blog will be profitable, equal any corresponding indicated historical performance level (s), be suitable for your portfolio or individual situation, or prove successful. Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion or information contained in this blog serves as the receipt of, or as a substitute for, personalized investment advice from Bogart Wealth. To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing. Bogart Wealth is neither a law firm nor a certified public accounting firm and no portion of the blog content should be construed as legal or accounting advice. A copy of the Bogart Wealth’s current written disclosure Brochure discussing our advisory services and fees is available for review upon request or at bogartwealth.com


Please Note: Bogart Wealth does not make any representations or warranties as to the accuracy, timeliness, suitability, completeness, or relevance of any information prepared by any unaffiliated third party, whether linked to Bogart Wealth’s web site or blog or incorporated herein, and takes no responsibility for any such content. All such information is provided solely for convenience purposes only and all users thereof should be guided accordingly.
Please Remember: If you are a Bogart Wealth client, please contact Bogart Wealth, in writing, if there are any changes in your personal/financial situation or investment objectives for the purpose of reviewing/evaluating/revising our previous recommendations and/or services, or if you would like to impose, add, or to modify any reasonable restrictions to our investment advisory services.  Unless, and until, you notify us, in writing, to the contrary, we shall continue to provide services as we do currently.
Please Also Remember to advise us if you have not been receiving account statements (at least quarterly) from the account custodian.

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