Tax planning is important in ensuring you do not give up any more money than you legally owe. Furthermore, saving on taxes can free up more money to grow. Therefore, understanding key tax concepts can be a strong wealth-building skill set. Taxes impact virtually every part of financial planning. So, we must consider the tax impact of many of our decisions. After all, the “best” answer to a problem can change when tax impacts are brought into consideration.
In Tax Planning:
- Understand savings strategies. For example, knowing which assets will grow tax-free or tax advantaged and those that don’t will impact from where and when we withdraw funds to live on in retirement.
- Evaluate education savings vehicles. For instance, if we begin saving when a child is young, it is hard to beat a 529 savings plan.
- Assess the tax advantages and disadvantages inherent in different insurance products in risk and insurance planning. After all, these impacts make these decisions very personal depending on our individual fact patterns.
- Create an investment strategy that works for your unique situation. This begins with understanding what you need to cover your living expenses, but also the risk you are comfortable bearing to make the necessary returns.
- Understand withdrawal strategies. Better plan from where and when to fund your retirement funding needs and lower cumulative taxes paid.
- Know estate and gifting rules. For taxable estates, trusts, tax exempt gifts and more offer many opportunities for tax savings.