- How can I start investing for my retirement?
- How can I plan for my children's education?
- How do I develop an investment strategy that supports my lifestyle?
- I have money to invest. Where do I begin?
- As a business owner, how do I plan for my own and my employees' needs?
- How can I lower my tax bill?
- How can I ensure the financial security of my family?
- How can I ensure that my wealth is transferred to my loved ones?
- How can I manage my short-term needs while maintaining my long-term financial goals?
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HOW WE APPROACH YOUR NEEDS
How can I lower my tax bill?
Keeping more of what you earn is a mantra heard everywhere. We all want less of our hard-earned money going to taxes; the key is learning how to do it.
Where to Start
When you're looking to lower your tax bill, you'll probably want to meet with your tax adviser or accountant. But your portfolio could yield some opportunities, too.
Below are a few ideas to consider. While some may be better suited to you than others, you can talk to an Edward Jones financial advisor about which ones make the most sense for your personal situation.
Your Retirement Plan
There are two types of retirement investments that are designed to offer major tax benefits: a Traditional IRA and a Roth IRA.
A Traditional IRA provides tax advantages in a couple of ways. First, your contributions may be tax deductible. And second, your earnings are tax-deferred, so you only pay taxes when you make a withdrawal.1
A Roth IRA provides the opposite. Although not tax deductible, your contributions are made with after-tax dollars, so your earnings grow potentially tax-free. Distributions can be removed penalty free and tax-free if certain guidelines are followed.2 Be aware that a Traditional IRA can be converted to a Roth IRA by utilizing the IRA Conversion strategy."
It's also important to note that for both a Traditional IRA and a Roth IRA, the best thing you can do is contribute the maximum amount you can or, the maximum allowed by law on a yearly basis.
Your Portfolio
Opportunities to lower your tax bill can also be found by reviewing your investments or investing in municipal bonds. And when you are looking to sell stocks you already own, remember to consider tax implications, and conversely, tax benefits. By holding onto stocks for more than a year, you could avoid significant taxes.3
Consider Other Areas
In addition to your retirement plan and your portfolio, you might find tax benefits in other areas of your life. For example, if you have a home-based business, you may want to see if you qualify for home office deductions. This could include claiming a percentage of your total home ownership cost, deducting daily expenses like office supplies, postage and more. Another idea for those who are recently married is to see what the difference would be in your tax return if you filed "jointly" versus "married filing separately." 4
Talk to Us
To see how some of these ideas could work for you, contact your local financial advisor. We can assess where you are now, talk about any steps you've already taken and figure out where to go from there. Bottom line: When you lower your tax bill, you keep more of what you've earned. And that's something everyone wants.
1. Anyone under the age of 70 1/2 who has earned income may establish and contribute up to $4,000 ($5,000 if age 50 or older) annually to an IRA. Distributions taken prior to age 59 1/2 will be subject to a 10% penalty; unless the distribution is due to expenses for secondary education or the first $10,000 attributed to the purchase of a first home, systematic withdrawals, expenses exceeding 7 1/2% for medical purposes, death, disability, and health insurance if the individual has been unemployed for 12 consecutive weeks. Mandatory distributions are required at age 70 1/2. If you consolidate your IRAs at Edward Jones, we can calculate this amount automatically.
2. Contributions are limited to $4,000 ($5,000 if age 50 or older) per year or 100% of earned income, whichever is less. An individual can make contributions to a Roth IRA, deductible IRA, and a nondeductible IRA, as long as the total annual contribution for all three accounts, per person, does not exceed $4,000 ($5,000 if age 50 or older) or 100% of earned income. Participation in any business retirement plan (SEP, SIMPLE, 401(k), Profit Sharing, 403(b), etc.) does not limit the contribution amount to the Roth IRA.
3. Tax implications should only be a consideration when making investment decisions, not the driving factor.
4. Please consult your tax advisor. Edward Jones and its employees are not authorized to offer tax or legal advice.
