Significant Tax Reduction Can't Happen After the Fact
Now that all of those important tax documents have arrived in the mail, it is time to start getting ready to file your 2013 federal and state tax returns. There aren't many ways to reduce your tax bill after the year ends. Contributions to a retirement plan is among the most common after the fact tax reduction tools.
The best way to reduce your income taxes is to start planning early in the year. When you get your 2013 returns completed, start your 2014 planning in earnest. Use your 2013 as a guide to estimate what will be on those same lines for 2014. Except for your salary and a few other guaranteed things, you will be making estimates for most of the entries. It is at this point where you can actually begin to quantify the benefit of reducing your interest and dividend income or harvesting investment losses to offset investment gains. Your actions may include changing the holdings in your portfolio, starting to contribute to your retirement plan now making it easier to afford larger contributions or deciding which accounts to use for next year's retirement income to minimize the tax impact.
John Napolitano, CFP is Chairman and CEO of US Wealth Management. John is a Past -President and member of the Financial Planning Association of Massachusetts. US Wealth Management is headquartered in Braintree, MA.