Seven Tax Strategies Everyone Should Know


Without a carefully developed tax strategy, individuals run the risk of missing out on key tax benefits and paying more taxes than necessary. Tax planning may be low on your list of favorite financial chores, but it’s one of the most important tasks to save your hard-earned money. The number one question we get during the holiday season from our clients is “What can I do to lower my tax bill before the year-end?”. Below are some common tax-saving moves for individual taxpayers.

Retirement accounts

Maxing out your retirement account(s) is a well-known tax-saving strategy. However, which retirement plan do you max out? You must carefully examine your projected income, retirement goals, and limitations to weigh the pros and cons of each possible retirement plan. Brief summaries of common retirement plans can be found here.

Loss harvesting

If you have cold investments like stocks and mutual funds, selling the investment at a loss offsets capital gains and up to $3,000 in ordinary income. However, it’s not always best to sell investments at a loss so make sure to discuss the option with your tax advisor before you take action. If you do sell the investment at a loss, make sure to wait at least 30 days if you decide to buy back identical shares to avoid a wash sale.

Tax gain harvesting

For investments held for more than a year, capital gain tax rates are either 0%, 15%, or 20% depending on your taxable income and filing status. If you’re in the 0% or 15% long-term capital gain tax bracket and you expect your long-term capital gain tax bracket to bump up next year due to an increase in taxable income, it could be ideal to sell your investments to recognize gains and re-invest if you still expect appreciation. Keep in mind that capital gain tax rate is determined by your taxable income, which is the number after all your allowable deductions. If you think this applies to you, tax planning with your tax advisor is crucial since you can plan for deductions ahead of time to decrease your taxable income.

Qualified Opportunity Zones

2017 Tax Cuts and Jobs Act established the Qualified Opportunity Zone program to provide a tax incentive for private, long-term investment in economically distressed communities. Investing into qualified opportunity funds allows you to:

  • Defer capital gains,
  • Reduce the taxable deferred gain amount if requirements are met, and
  • Fully exclude the gain on qualified opportunity fund investment if requirements are met.

Additional information on Qualified Opportunity Zones can be found here.

529 Plans

As college tuitions are increasing almost 8 times faster than wages, we all know that college savings for your children is extremely important. Did you know that college savings offer tax advantages? Every state has different plans so make sure to talk to your advisor for details.

Charity contribution

Making a charitable contribution is great since you’re killing two birds with one stone by making a positive contribution to our society and receiving a tax deduction. However, there are many creative ways to make a charitable contributions for maximum tax savings. For details on different strategies, see this article.

Selling your residence

You should discuss section 121 with your tax advisor if you are planning to convert your principal residence into a rental property or have a significant appreciation in your rental property. Section 121 If you have a capital gain from the sale of your home, you may qualify to exclude up to $250,000 ($500,000 if married filing jointly) of gain from your income. To qualify for the exclusion, you must meet the following three tests

  • Ownership test: You have owned your home for a period aggregating at least two years out of the five years prior to its date of sale. For married filing jointly, only ONE spouse has to meet the ownership test.
  • Residence test: You have used your home as your main home for a period aggregating at least two years out of five years prior to its date of sale. For married filing jointly, each spouse must meet the residence requirement individually.
  • Look-back test: You have not excluded the gain from the sale of another home during the two-year period prior to the sale of your home

These are just few strategies you should keep in mind towards the end of the year. If you think you would benefit from these steps, please contact our office at 443-478-3747 or email for assistance with implementing year-end planning strategies. This publication is not a substitute for such professional advice or services, nor should it be used as a basis for any decision or action that may affect your business. Kauffman|Kim, LLP (Kauffman & Kim, or the “firm”) shall not be responsible for any loss sustained by any person who relies on this publication. Any action you take upon the information on this publication is strictly at your own risk. Kauffman|Kim, LLP (Kauffman & Kim, or the “firm) assumes no responsibility or liability for any errors or omissions in the content. Comments are closed.

Contact Us
close slider