With marginal tax rates as high as 37% in 2024, effective tax planning is more crucial than ever to safeguard your financial well-being. Here are three essential strategies to help reduce your tax liability:
Reduce or Eliminate Taxes: One way to lower your tax burden is by receiving income in nontaxable forms or increasing tax deductions, exemptions, or credits. Consider municipal bonds, where interest income is often tax-exempt at the federal, state, and local levels. Also, focus on investments like growth stocks that generate capital gains. These gains aren’t taxed until you sell the asset, and long-term capital gains (held for over a year) are taxed at favorable rates compared to ordinary income. In 2024, the long-term capital gains rate of 15% applies to income up to $518,900 for singles and $583,750 for married couples. You can also explore investments that pay qualified dividends, which are taxed similarly to long-term gains.
Postpone the Payment of Taxes: Postponing tax payments allows your earnings to compound fully, including the portion that would have otherwise gone to taxes. For instance, maximizing contributions to retirement accounts such as 401(k)s or IRAs defers tax payments until you make withdrawals, potentially during a time when you’re in a lower tax bracket.
Shift the Tax Burden to Others: Another strategy is to transfer assets to others in lower tax brackets, such as through tax-free gifts. In 2024, the annual tax-free gifting limit increases to $18,000 per individual ($36,000 for married couples). Consider using the lifetime gift tax exclusion, which rises to $13.61 million in 2024, for even larger transfers.
Strategic tax planning can make a significant difference in reducing your liability while maximizing your wealth. Verity CPAs is here to guide you through every step, ensuring your financial future is secure. Contact us today at info@verity.cpa or 808.546.5026 for personalized advice.
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