Financial Literacy Month: Tax Strategies to Maximize Your Savings

Tax planning and maximizing your savings are integral to any comprehensive financial strategy. It is paramount to manage tax efficiency without jeopardizing one’s financial goals.

Numerous financial literacy techniques can be leveraged to help manage taxes, align with objectives, and maximize savings. Here are five strategies to help you get started saving

1. Understand how savings vehicles are taxed.

One tax management strategy is understanding tax-efficient savings vehicles. Many account types are available, each with unique tax features.

Pre-tax accounts— Contributions are made with pre-tax dollars. When withdrawing monies, the contributions and accumulation are taxed. Examples include 401(k), 403(b), employer-sponsored accounts, and Traditional IRAs.

After-tax accounts—Contributions are paid into a retirement or investment account after income taxes on those earnings have already been deducted. The accumulation is taxed in some account types, such as brokerage accounts, but not in a Roth IRA account.

2. Comprehend how AGI works

Another tax strategy involves reducing your adjusted gross income (AGI) through contributions to health savings accounts (HSAs) or flexible spending accounts (FSAs). HSAs and FSAs are tax-advantaged accounts that you can contribute to pre-tax and then use to pay for eligible medical expenses. This strategy can help mitigate your overall tax liability and increase your net savings.

3. Discern tax credit eligibility

The tax code also offers numerous credits and deductions, which can significantly help decrease tax liability. Some common credits include:

• Child tax credit
• Earned income tax credit
• American Opportunity Tax credit
• Mortgage interest tax credit

These credits help reduce one’s tax bill rather than just reducing taxable income like deductions do. Understanding and utilizing these credits can help save on taxes, helping save more for goals or debt reduction.

4. Comprehend tax-loss harvesting

Tax-loss harvesting is a strategy to offset capital gains with capital losses. If you sell an asset at a loss, you may offset it against capital gains realized within the same tax year. This may result in a significant reduction in your tax bill and an overall boost to your savings.

Because tax-loss harvesting is a complex strategy, consulting with financial and tax professionals is vital before claiming the loss at tax time. Failing to show accurate evidence of the gain and loss may result in an IRS fine, audit, or both.

5. Seek professional guidance

Lastly, consider seeking guidance. Since tax laws are complex and constantly changing, having a tax professional help identify additional strategies based on your circumstances may be beneficial. These professionals understand the above strategies and can help you work toward spending less on taxes and saving more of your hard-earned dollars.

Maximize Your Savings

In conclusion, several strategies can help you manage taxes and maximize your savings. Remember that an effective tax and savings strategy must be appropriate for your financial situation, goals, and circumstances.

SWG4312451-0325c This information is provided as general information and is not intended to be specific financial guidance.   Before you make any decisions regarding your personal financial situation, you should consult a financial or tax professional to discuss your individual circumstances and objectives. The source(s) used to prepare this material is/are believed to be true, accurate and reliable, but is/are not guaranteed.

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