Tax planning should be a year-round process, not just something that happens in the weeks leading up to April 15. Massachusetts residents were reminded of this last week when Ballot Question 1 passed, adding a new state levy of 4% tax on income over $1 million beginning in 2023. You may be thinking this won’t apply to you if you don’t make more than $1 million per year in compensation, but you could be wrong. An asset sale (like a home or business) or an inheritance could yield a windfall with an extra tax bite.
Taxes are a complex issue, and attentive tax planning throughout the year could help reduce future exposure to a variety of added costs and surtaxes.
6 tax planning ideas to help you keep more of your wealth
- Keep track of home improvements and the adjusted cost basis of your home. This can help reduce a potential taxable gain when you sell. Only the gain is subject to tax – not your total sale proceeds.
- Consult with your advisory team before finalizing a large business or property sale. A sale with a large gain could be structured in a way to spread the gain out over several years, reducing the tax burden.
- Give planned investment real estate sales close examination. Properties that have been depreciated over many years may have depreciation recapture, a special tax item that can be a surprise if unexpected.
- Pay attention to the timing of compensation, especially deferred compensation, and pensions. Large lump sum payouts can increase marginal tax rates.
- Take a second look at your RSUs or employee stock purchase plans. Both can be advantageous benefits but may also create unintended tax traps around timing of trades or missing basis.
- If bonus or performance income can be recognized in 2022 instead of 2023, one should evaluate that option with tax and wealth management advisors.
Throughout the year Heritage provides resources to help you minimize your tax burden and maximize your wealth. Here are some recent materials you may find helpful:
- A summary of 2023 IRS Tax Changes
- A replay of our Maximize Your Wealth Before Year End webinar
- Smarter Tax Planning, a blog from Heritage President Sammy Azzouz
- *Newly released cheat sheet* 2023 Important Financial Numbers to Know
Clients of Heritage participate in tax planning throughout the year as part of their overall financial plan. We enjoy having conversations about “what ifs” and helping you make informed decisions. Whether it is legislation or your personal circumstances that change, we are here to guide you with your best interests in mind.