Are you looking for ways to make sure your family is financially secure—not just today, but—over multiple generations? If so, strategic tax planning should be at the top of your priority list. Taxes are one of the largest expenses in many affluent households and families today.
However, establishing a comprehensive plan for minimizing how much you’re assessed to owe each year can potentially save you significant amounts of money. This is why, in the sections below, we explore the short-term benefits and long-term advantages that thorough tax planning could create for your family.
This article considers the following:
- The IRS doesn’t care about your family’s prosperity
- The effect of overpaying on your generational wealth
- A single year’s tax savings vs. a long-term approach
- Scott Marsh Financial can help you avoid overpaying
The IRS Doesn’t Care About Your Family’s Prosperity
Take it from a CERTIFIED FINANCIAL PLANNER™ in Utah specializing in retirement planning for high-net-worth individuals: The Internal Revenue Service (IRS) is a government agency responsible for collecting taxes and enforcing tax laws. While they may not be explicitly anti-family prosperity, they aren’t responsible for helping you achieve it, either. Their primary concern is ensuring that taxpayers comply with the tax laws and pay the taxes they owe.
That’s part of why they make no secret of favoring the financially successful for audits. This places the burden on us, as taxpayers, to seek every legal opportunity to minimize our tax liability. This includes keeping accurate records, claiming all eligible deductions and credits, and filling out returns on time.
There are other ways to potentially reduce your tax costs, as well:
- Maximizing your retirement contributions. Money paid into a traditional IRA or 401(k) plan becomes deductible, reducing your taxable retirement income and potentially lowering your overall tax liability.
- Taking advantage of tax credits. Utilizing opportunities such as the Earned Income Tax Credit or the Child Tax Credit helps to limit your tax bill on a dollar-for-dollar basis.
- Leveraging charitable donations. If you’re inclined to, giving to qualified organizations can provide philanthropy deductions on your tax return and benefit your community at the same time.
- Planning your business structure. If you’re an entrepreneur, your company can be structured strategically for a significant reduction of your personal income tax liability. A standard business plan alone rarely includes this.
- Tracking your expenses. Keeping accurate records of all costs you pay related to your business or job can help you claim additional deductions, as well.
The Effect of Overpaying on Your Generational Wealth
Too many people fail to realize that overpaying taxes can have a significant impact on their financial legacy. Building “generational wealth” refers to growing the assets you plan on passing down from one generation to the next. This can include your property, investment portfolios, savings accounts, and more.
By paying more than you really had to, you are essentially giving away that money, those resources, to the government. Overpaid income taxes also mean that you are missing out on potential investment opportunities: You could be using that money to invest in stocks, bonds, or real estate rather than lining the IRS’s coffers.
In fact, by investing that money wisely, you could potentially increase the amount of wealth you have to pass down to your descendants. One of the multiple ways to achieve this is through compound interest. This powerful tool can help your wealth grow, possibly exponentially, over time. We call decisions like these “Million-Dollar Choices.”
A Single Year’s Tax Savings vs. a Long-Term Approach
When it comes to tax savings, many individuals and businesses tend to focus on short-term strategies to reduce their tax burden for the current year. While these approaches can certainly provide some benefits in the short run, a long-term approach to tax mitigation often makes greater savings and future financial stability possible.
The simplest reason why is that the amount of money you could potentially save off your multiple years’ tax bills easily dwarfs any single year’s savings. By strategizing your taxes comprehensively over years or decades, you can schedule business and personal financial moves to coincide with utilizing the maximum allowable credits.
For example, we might be able to save you $500 or more off of your 2024 tax bill. However, if we plan out the next five years instead, it becomes possible to reduce your tax liability, overall, to a far greater extent. Think of that single year’s deductions contrasted with multiple years’ tax-credit-earning opportunities utilized, long-term.
We could, for instance, take advantage of timing your capital gains and losses over multiple years. Similarly, we might leverage a construction company you own to make improvements on a commercial real estate property that’s part of your retirement portfolio. This could generate upkeep-related tax credits, further lowering your taxes.
By minimizing your tax liability, taking advantage of tax-deferred investment opportunities, and maximizing your deductions, we could do far better than just save you money. Approaching your taxable income sources systematically, and reducing them as much as possible over a number of years could possibly facilitate growing your wealth, despite today’s economic weather.
Scott Marsh Financial Can Help You Avoid Overpaying
At Scott Marsh, we take pride in serving you as fiduciaries. A fiduciary wealth manager is a financial advisor who is legally obligated to act in their clients’ best interests at all times. There are several reasons why this can be the best choice for helping you avoid overpaying your income taxes.
The first is our objectivity. Because we are legally obligated to act in your best interests, we are much less likely to have conflicts of interest. We recommend investments solely because of their possible benefit to you.
The second is our accountability. We are required to disclose all fees and conflicts of interest. You are required to receive regular reports on your investments and their performance, as well. This transparency helps keep you aware of what is happening with your investments, retirement accounts, and so on.
Finally, we maintain a long-term perspective when it comes to managing your investments. This means that our net worth retirement planning is based on building a diversified portfolio capable of growing over time rather than chasing short-term gains.
Our professional wealth financial planning in Utah doesn’t follow fads or lean on one-size-fits-all solutions, either. Contact us for an appointment!