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No matter which phase of life you’re in, you might be looking for ways to trim your tax bill. Here are some strategies to consider!

Each year around tax time, most of us wonder how we can pay less in income taxes, and the answer to that question is always, “It depends.” Each person’s situation is completely unique to them, and the strategies that may be able to be employed to mitigate or reduce tax obligation vary based on goals and circumstances. That’s why it can be so important to find an advisor and a tax professional who can work together as a team to help you determine strategies that can lower your bill. To that end, we’d like to share seven strategies you should know that may or may not be able to cut your tax obligation.

If You’re Working

Beef Up Your Traditional 401(k) [1]

Contributions to a traditional 401(k) account are made on a pre-tax basis, meaning that they do not count as taxable income. This could lessen your tax obligation, potentially even dropping you into a lower tax bracket for the year. It is important to remember that these contributions are tax-deferred, meaning that you will pay taxes upon withdrawal. There are also limits to how much you can contribute. For 2023, you are allowed to contribute up to $22,500 to your 401(k) plan, plus an additional catch-up contribution amount of $7,500 if you are age 50 or older.

Contribute to a Traditional IRA [1]

A traditional IRA is an account independent of your employer that allows you to contribute funds to save and invest for retirement if you have earned income. You may be able to deduct traditional IRA contributions from your taxes. For those who are married and filing jointly in 2023, you can deduct your traditional IRA contribution if your joint income is $116,000 or less. For 2023, you are allowed to contribute up to $6,500* to your own traditional IRA, plus an additional catch-up contribution amount of $1,000 if you are age 50 or older.

Contribute to a Roth IRA [2]

Unlike contributions to a traditional IRA, contributions to a Roth IRA are not tax-deductible because account holders fund their accounts with post-tax dollars. The benefit of a Roth IRA is that gains are made and withdrawals are taken tax-free as long as the account has been in place for five years, slicing tax obligation later on. In 2023, you can contribute the full $6,500*/$1,000 catch-up limit to a Roth IRA if your single-filing income is $138,000 or less or your married-filing-jointly income is $218,000 or less. Those with greater incomes may be able to contribute partial amounts.

*In any given year, you can contribute to a traditional IRA, a Roth IRA or a combination of both only up to the $6,500/$1,000 catch-up limit.

If You Have Taxable Investments

Tax-Loss Harvesting [3]

Tax-loss harvesting is a strategy typically used by investors who have experienced losses in their investments. It involves selling those positions while they’re at a lower point, realizing a loss and then using those losses to offset taxable gains. In a given year, investors can claim losses of up to $3,000 to lower their taxable income; however, losses can be carried forward into future years. Oftentimes, investments are sold during market downturns, then proceeds are reinvested with a new allocation. We’d always advise consulting and working closely with your financial professional who understands your goals and plan.

For Those Close to Retirement

Consider Roth Conversions

A Roth conversion can convert tax-deferred retirement funds into tax-free funds, allowing you to experience all of the perks of Roth accounts, like tax-free growth and withdrawals, no required minimum distributions, flexibility and tax-free passing of assets to heirs. The one caveat to this strategy is that you will owe taxes on the converted funds in the tax year that you complete any conversion. That’s why this can be a helpful strategy for low earning years, or for those close to or already in retirement. It’s always a good idea to speak to your advisor and tax professional before performing one or a series of conversions because they cannot be undone.

Annuities and Permanent Life Insurance [4]

If you are looking for tax-advantaged retirement income, an annuity or life insurance may (or may not) be right for you. If you purchase an annuity with non-qualified money, or money you’ve already paid taxes on, the interest grows and is credited on a tax-deferred basis, so only gains will be taxed at the time of payment. On the other hand, if you purchase an annuity with qualified money, such as money from a traditional 401(k) or IRA, your annuity payments are entirely taxable as ordinary income. Either way, annuity payments are not counted as part of your combined income by Social Security and will not be taxed. Similarly, modern permanent life insurance policies are not counted by Social Security and can offer benefits to both policyholders and their beneficiaries, such as tax-free death benefits and tax-free borrowing from the cash value portion of the policy for retirement income.

For Any Phase of Life

Charitable Giving [5]

Charitable gifts are typically in the form of cash, property, stock holdings or other any other asset that has a determinable market value. They are given to or for the use of a qualified organization, which generally includes charities, religious organizations and private foundations with tax-exempt 501(c)(3) status. Deductions on long-term capital gains are limited to 30% of a person’s adjusted gross income, while deductions for other contributions are limited to 60% of a person’s adjusted gross income. RMD amounts of up to $100,000 of qualified, pre-tax retirement money can also be donated, and after 2023, that amount will be indexed to inflation under the new SECURE Act 2.0.

To learn more about retirement topics and tax-planning strategies, please give us a call. You can reach Dawn Potts at (913) 320-2069 or schedule an appointment with her directly online here



This information does not constitute legal or tax advice. Prime Capital Investment Advisors, (“PCIA”), Private Client Services (“PCS”) and its associates do not provide legal or tax advice. Individuals should consult with an attorney or professional specializing in the fields of legal, tax, or accounting regarding the applicability of this information for their situations.

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Dawn Potts, AIF®, Financial Advisor / Partner

Prime Capital Investment Advisors, LLC
6201 College Blvd, Suite #150
Overland Park, KS 66211