Strategic tax planning is the process of analyzing your current financial portfolio and financial situation and creating a plan that looks for ways to reduce the total amount you will pay in taxes at the end of the year. 

Regardless of your tax bracket, a comprehensive tax planning strategy is immensely useful for anyone. The key factor in an impactful strategy is being proactive. 

Use the following guide and its tips to be proactive with your tax planning to look for ways to reduce what you may owe Uncle Sam in 2023. 

Tax loss harvesting is a strategy investors use when they sell a security in their portfolio at a loss to offset the capital gains tax, which is due on other securities and investments in their portfolio upon their sale, which comes at a profit. 

This is a strategy used to limit the overall tax burden due on an investor’s short-term capital gains. These gains are most often taxed at a higher rate compared to long-term capital gains, although this method can be used to offset long-term capital gains as well. 

This is an excellent strategy to reduce your taxes while also preserving the value of the assets in your portfolio. Suppose that your capital losses exceed your capital gains for the year. You are allowed a deduction of up to $3,000 in net losses from your annual income. It should be noted, however, that you cannot deduct more than your total capital losses for the year; if your net losses surpass the $3,000 threshold, the IRS allows the additional losses to be carried and counted towards subsequent tax years.

When considering a tax-loss harvesting strategy, keep the following in mind:

• The strategy requires selling an asset or security at a net loss.

• A sound tax-loss harvesting strategy aims to reduce the total amount of capital gains taxes upon the sale of profitable assets or securities. 

• Investors can use the profits from the sale to purchase a similar asset or security. 

• Though buying similar investments is allowed, investors should take care to avoid violating the IRS rule, which prohibits them from buying a “substantially identical” asset or security within 30 days. 

Tax loss harvesting can be a powerful tool for investors to use to reduce their overall tax liabilities. Though even a flawless tax loss harvesting strategy cannot restore your portfolio to its previous worth, it can substantially mollify the impact from the loss. 

A Roth IRA is undoubtedly one of the best retirement accounts available, as it offers a wide array of benefits, including tax-free income and the ability to leave money to heirs and beneficiaries tax-free. The Roth’s tax-free attributes also allow for considerable flexibility when it is finally time for you to distribute your income from your retirement accounts. 

The benefits from a Roth IRA don’t have to be exclusive to current Roth owners, however, as those with 401(k) or traditional IRAs are able to convert their plan to a Roth and begin to take advantage of its tax-friendly benefits. 

The benefits of a Roth IRA include the following: 

• You can deposit after-tax money and withdraw your funds tax-free upon retirement (after age 59 1/2). 

• You can pass down a Roth to your heirs tax-free.

• Unlike a traditional IRA, there are no required minimum distributions (RMDs). 

• You can withdraw contributions (not earnings) at any time with no penalty. 

Converting from a 401(k) or traditional IRA to a Roth IRA is a straightforward process. Follow these basic steps to convert your retirement funds to a Roth:

1. Open your Roth account at a bank or other financial institution. If you already have a Roth account, you can use that account. 
2. Contact the administrators of both financial institutions (the one you opened the new Roth account with and the institution from which you are converting the funds from), and inquire about what steps you need to take in order to make the conversion. 
3. Fill out and submit whatever required paperwork there is to initiate the transfer.

Withdraw rules for Roth conversion work differently. Any traditional IRA or 401(k) converted will be taxed and penalized if any withdrawals are taken within five years of the conversion, or if any are taken before you turn 59 1/2. For any withdrawals taken from a converted Roth after you turn 59 1/2, the five-year rule does not apply. 

Thoughtful investors often space out their Roth conversions over many years as opposed to converting the full amount all at once to avoid large tax hits. In doing this, they avoid jumping into a higher tax bracket and paying the higher tax rate that comes with it. 

Because careful planning and consideration is needed to ensure you’re executing a sound Roth conversion strategy, it is important to consult with a financial and tax professional before making such moves. They can help map out a formal plan for your Roth conversion to keep your taxes lower now and in the future.

Giving to charity has an added benefit besides the obvious donation to a noble cause: prospective tax benefits. When you give to charity, you can reap tax deductions while saving money for your beneficiaries as well. The following strategies work well for anyone examining the potential tax benefits of charitable giving: 

• Plan your donations strategically: Some years, you will earn more than others. When this happens, consider using this bump in income to combine a few years’ worth of donations instead of dividing them into smaller amounts. Using one large donation for a bigger deduction in your high-income years is a clever trick to pay less in taxes. Group donations in high-income years and use your standard deductions in regular or lower-income years. 
• Roll donations to charity: For retirees who do not need their RMD for income, applying for a qualified charitable deduction or charitable rollover strategy can be a sound way to reduce their taxes after they turn 70 1/2. You can roll your RMDs (up to $100,000 per year) directly into a qualified charity, reducing taxable income by excluding whatever monetary amount you gifted. 
• Donate any high-net-worth assets: Selling high-value assets which have appreciated over time, such as real estate or stocks, can come with a hefty capital gains tax bill. However, donating these assets to qualified charities is an astute way to avoid considerable capital gains taxes. 

The charity receiving the assets becomes liable for the capital gains tax, while you receive an income tax deduction worth whatever the fair market value of the asset donated is. Donating high-value assets also reduces the overall size of your taxable estate and is a good strategy to use when estate planning.

Of course, there are other strategies to consider when donating to charity besides the ones above. Many people choose to give their retirement plan to charity upon their death as a way to help reduce the overall tax bill for the beneficiaries of their estate. 

Your beneficiaries will be subject to income tax and possibly estate tax on withdrawals if you name them as the heirs of your plan. Furthermore, with the passing of the Secure Act, inherited IRAs became a far less viable option for beneficiaries. Now beneficiaries can only stretch any distributions taken for up to 10 years before the full distribution, and tax payments are also obligatory. This timeframe severely reduces any tax-deferred growth of any IRAs which are inherited. 

However, since charities are exempt from taxes, leaving (non-Roth) retirement plans to any qualified charitable organizations while still leaving your heirs to inherit other assets from your estate will reduce their overall tax bill.

Working with a CFP has many benefits, including strategic tax planning. Everyone’s tax situation will be slightly different, from brackets to deductions and returns. Working with a CFP (Certified Financial Planner) allows them to gain insight into your financial situation and standing, which can help them to help you maximize your tax returns and overall cash flow. 

Working with a CFP regularly for all your financial needs directly benefits and correlates with a sound tax planning strategy, as they will know your financial goals and personal situation, which they will take into account when coming up with a unique tax strategy for you.

At SGL Financial, our solution for filing taxes and planning combines our knowledgeable CFPs and expert CPAs, Enrolled Agents and tax preparers to ensure a fast, simple, and convenient way to both file taxes and implement a strategy befitting your situation. 

Working with a knowledgeable CFP has never been easier. We provide a high-end concierge service to answer any questions you have throughout the entire process and guarantee that we can help you implement advanced tax planning strategies that will make tax season easier and help you achieve your financial goals. 

In order to strategize a competent tax plan for 2023, it’s imperative to understand what the tax landscape will look like in 2023. Understanding the new tax brackets and changes in tax credits and deductions will help you better formulate a sound tax planning strategy for 2023. 

In 2023, the standard deductions are increasing and changing:

• Married couples filing jointly will see their standard deductions rise by $1,800 from the 2022 standard to $27,700. 

• The standard deduction for single taxpayers and married couples filing separately will increase by $900 in 2023 to $13,850. 

• Taxpayers 65 and older can add an additional $1,500 to their standard deduction in 2023 if married. If they are unmarried or a surviving spouse, this amount increases to $1,850. 

Federal marginal tax rates are set to remain the same in 2023, although each tax bracket has been adjusted appropriately to account for the high rates of inflation in 2022. Here are the 2023 tax brackets for single filers:

• 37% for income higher than $578,125

• 35% for income over $231,250

• 32% for income over $182,100

• 24% for income over $95,375

• 22% for income over $44,725

• 12% for income over %11,000

• 10% for income that is $11,000 or less

These are the 2023 tax brackets for married couples who are filing jointly:

• 37% for income higher than $693,750

• 35% for income over $462,500

• 32% for income over $364,200

• 24% for income over $190,750

• 22% for income over $89,450

• 12% for income over $22,000

• 10% for income $22,000 or less

Tax credits are changing in 2023 as well. The 2023 child credit amount will be $2,000 per qualifying child, as it will not be adjusted for inflation. However, the maximum refundable portion of the credit will be adjusted for inflation and is expected to increase to $1,600 for 2023. 

Retirement planning is one of the most crucial aspects of your financial plan and can comprise decades of planning. Everyone’s situation is going to be different, as well as their retirement goals. Knowing your goals makes it much easier to strategize and plan accordingly to meet those goals. 

As financial planners in Buffalo Grove, all of our financial advisors and planners at SGL Financial can help you realize your goals, review them, and prioritize them to plan appropriately. All of this can help you get a ballpark idea of when you would like to retire and if it is realistic based on your financial situation, retirement and savings accounts, and the projected growth of your assets. 

Retirement planning should not be underestimated or feared, as many people do not plan appropriately out of ignorance or trepidation. It would be best to begin retirement planning immediately, as the sooner you do, the better. Getting started can be tough, and planning strategically for something potentially decades in the future can be a daunting task. Reach out to one of our expert advisors at SGL Financial for tax planning strategies in Buffalo Grove and for personal recommendations on how to meet your financial and retirement goals.