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Tax Planning

CrossRoads Financial

At CrossRoads Financial, we are a family-owned and operated independent financial advisory business located in Hilton Head Island. Using our process, the Iron Horse 360, we take a holistic approach to financial planning. This means our services are always personalized, and we pride ourselves on handpicking investment opportunities for each unique portfolio. In addition, our firm abides by the fiduciary standard of care, which requires that our actions and decisions are ruled by the client’s best interest. To aid in this, Bill has acquired several certifications: Bill being certified as a CFP and a CPA. Through this process, I have built strong, long-term bonds with clients for over two decades. I believe that values matter, which is why I will continue to offer clarity, transparency, and valuable counsel to those who trust us to provide it..

What is Tax Planning?

After analyzing your financial situation or plan, it is essential that your financial advisor also looks over the tax plan for those actions and strategies you have decided on. Each element of your financial plan should work together in a way that leaves you spending as little as possible on taxes. The most successful plans work to reduce tax liability and maximize the amount you can contribute to savings accounts. This is known as a tax-efficient plan, and it is a critical, often overlooked component for a well-rounded financial plan.

How Does Tax Planning Work?

For a plan to be tax-efficient, your financial advisor must consider certain factors such as the timing and size of your income, the timing of purchases, and the planning for other expenditures. Then, the investments and/or type of savings plan you and your advisor select for your portfolio will need to complement your tax filing status and deductions. Once these steps are completed, your advisor will develop a financial strategy that seeks the best possible tax outcome.

Tax Planning for Retirement

Some of the most efficient ways to reduce the money you spend on taxes are by contributing to specific tax-deferred savings plans, such as a traditional IRA or Roth IRA. By contributing money to a traditional IRA, investors can minimize gross income according to the amount they have added to their accounts. This contribution and any earnings will then be tax-deferred until retirement, helping investors invest their nest egg and while remaining tax efficient over time.

Other retirement plans are available to help minimize tax liability; among them is the 401(k) plan used by many large companies with a plethora of employees. With a 401(k) plan, employees decide on a certain amount of income they would like their employer to defer. This deferred income will be added to their 401(k) plan, any earnings are also tax-deferred, and also help to minimize their taxable gross income.

Tax Gain-Loss Harvesting

Another form of tax planning relating to your investments is tax gain-loss harvesting. Tax-loss harvesting is done by selling securities to offset capital gains. When an investment does well, the capital gains it creates are subject to a capital gains tax. These can push investors into a higher tax bracket. One way to minimize the intensity of capital gains tax liability is by selling investments experiencing significant losses by selling these securities; investors “harvest” the loss. Since their capital gains will be lowered to reflect the amount of assets they have sold, this way, investors are using the sale of underperforming investments to offset the price of taxes they have accumulated from their gains. The assets are then replaced with similar assets. This way, the portfolio's asset allocation will remain balanced and align with the risk level and return potential the investor has become comfortable with.

Key Takeaways

By analyzing your current financial situation and plan, financial advisors will ensure that your plan is also tax efficient. This is known as tax planning, and it will help investors pay the lowest possible amount on their taxes. This is often done through tax-deferred savings vehicles such as retirement plans in the form of IRAs or 401(k)s or through tax gain-loss harvesting. Taxes impact almost all of your finances, so creating a plan that keeps tax efficiency in mind is critical for reaping the most significant benefits from your financial plan. Our team at CrossRoads Financial is here to take the burden off your shoulders and develop a holistic plan prepared to tackle every corner of financial stability.

CrossRoads Financial and LPL Financial do not offer tax advice or services.