Your Money, Your Independence 

I get it, dealing with your taxes can be emotional. 

Add the IRS stating that the average tax refund paid out was 9.8% less than 2022. Ugh.

You’ve had some separation, it’s time to return for an honest conversation. Maybe even bring in some outside help. 

A CFP’s goal with tax planning is to help clients take proactive steps to save money on their taxes now and help reduce liabilities in the future. Aspects include lowering your AGI (adjusted gross income), leveraging tax deductions, taking advantage of tax credits, tax deferrals and timing of large purchases, sales and realization of income. 

Consider potential ways to make impact for 2023:

Exercising Restricted Stock Units (RSUs) - Sold some RSUs and get a large tax bill? Connect with HR to discuss withholding options before your next exercise. Also, learn of the benefits and drawbacks of concentrated positions as well as short-term versus long-term capital gains.  

Adjust your W-4 - If you got a large refund, lower your withholding and do more with your money, like ~4% money market interest. Also, if both spouses work and one is self-employed, consider raising your W-4 withholding to avoid potential penalties for underpaying estimated taxes on a growing small business. 

Track Your Side Hustle - Government announced Venmo and payment apps report income for goods and services worth $600 or more annually — a sharp drop from previous $20,000 threshold. Panic and confusion followed, so the IRS postposted by a year. 

Whether you receive a 1099-K form or not, you’ve always been obligated to report income. To help offset, get up to speed on potential deductions including expenses, amortization, and dedicated home office space. 

Revisit Work Benefits - You can impact your adjusted gross income (AGI) through 401k contributions as well as funding a HSA funding, FSA for dental/vision, FSA dependent care and Commuter Benefits - especially if required to go back into the office. 

While some changes can’t happen until open enrollment (and impact 2024), don’t forget if you have a life event - new child, spouse loses or changes job - you have 30 days to revisit and reset your work benefits. 

Minimize Taxes In Retirement

Taxes are inevitable with retirement savings, deferred compensation and/or pension income, but consider: 

Before Retirement - Contribute to Roth 401(k) and Roth IRA (if eligible) now. After age 59 ½ and owned for at least 5 years, withdrawals are completely tax free. Added bonus is Required Minimum Distributions (RMDs) don’t exist for Roth accounts nor are balances in Roth accounts a factor in determining RMDs for your tax deferred accounts. 

During Retirement - Distribute funds in certain years that you claim large deductions, such as the breaks for medical expenses or charitable gifts that temporarily lower your tax rate.  

Before or During - Roth Conversion and Backdoor Roth. Yes, pay the taxes now for benefits of Roth later. Consider larger conversions in years of lower income if self-employed and/or time away from work. Also, when 20% (or more) market corrections occur consider an opportunity to convert investments over to Roth, paying less in taxes and allowing for rebound inside Roth.  

Tax planning is complex, but it doesn’t need to be complicated. Work with someone to help you save money, stay organized and reduce liabilities in the future. 

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.

Glenn Brown is a Holliston resident and owner of PlanDynamic, LLC, www.PlanDynamic.com. Glenn is a fee-only Certified Financial Planner™ helping motivated people take control of their planning and investing, so they can balance kids, aging parents and financial independence.

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