This article appears as part of Casey Weade's Weekend Reading for Retirees series. Every Friday, Casey highlights four hand-picked articles on trending retirement topics and delivers them straight to your email inbox. Get on the list here.
Keep more of your money: By being proactive with taxes, you have the opportunity to take strategic steps aimed to reduce your lifetime tax burden. While in general, tax planning is going to mean different things to different people, the author here views its biggest factors as including:
📌 Projecting income for a given year: Pinpointing a projected tax scenario each year by utilizing software or prior years’ tax forms is a helpful starting point to show you the potential impact taxes can have on your income. While leveraging this “as is” scenario, be mindful of any tax law changes, and also review information such as your Adjusted Gross Income (AGI), Modified Adjusted Gross Income (MAGI), taxable income, tax bracket, and lastly, your marginal tax rate.
📌 Making knowledgeable decisions about future income and tax events: We know the current tax code will sunset in 2026, at which point tax rates will rise. With this being a change on the horizon you can confidently plan for ahead of time, it’s important to assess how future increases will impact your income and plan accordingly now.
📌 Determining what, if anything, can be done to lower the overall tax paid: Depending on your financial situation, your taxes may or may not be lower in retirement. It’s possible to go up or down a tax bracket, so as you plan, it’s crucial to consider possible changes in your current “as is” scenario by focusing on income and deductions. This article even lists potential tax pitfalls to be mindful of, which can cause you to move up into that higher marginal tax rate.
Be wary: If your accountant is simply filing your taxes every year, and in lucky instances, sharing some things you can do to reduce your taxes this year, you don’t have a “tax planner” – you have a “tax preparer”. As a result, you may need to bolster your team to develop a real tax strategy.