Tax Planning For Everyone
Olivia is a recent college graduate who is attending graduate school and pays for her tuition and required fees. After meeting with her tax planner, Olivia learned that she is eligible for the Lifetime Learning Credit (LLC). By claiming this credit, she can decrease her tax liability by $2,000, putting real tax savings in her pocket while she furthers her education.
Mike and Sara, both in their early 30s, work full-time and have two young children in daycare. Their tax accountant advised them to take advantage of a Dependent Care Flexible Spending Account (FSA) through Mike’s employer, allowing them to pay $5,000 of daycare expenses with pre-tax dollars. They can also claim part of the Child and Dependent Care Credit. Mike and Sara are in the 24% tax bracket, saving around $1,400 in taxes.
Lila, age 45, owns a marketing agency. Her CPA recommended setting up a Solo 401(k), allowing Lila to contribute up to $23,500, plus a matching employer contribution. She also claims the Qualified Business Income (QBI) deduction, reducing her taxable income by 20%.
David and Carol, both age 55, are empty nesters with grown children. After meeting with their tax accountant, they decided to use their extra cash to “catch-up" on their 401(k) and Health Savings Account (HSA) contributions, which enabled them to save $1,870 in taxes. HSA accounts are often called “triple threat tax-advantaged” because they offer three key tax benefits: contributions are made pre-tax, funds grow tax-free, and withdrawals for qualified medical expenses are also tax-free.
Frank, age 68, is retired and receives both Social Security and IRA distributions. His tax planner works closely with him to strategically coordinate IRA withdrawals, helping him stay within his desired tax bracket, reduce taxes on his Social Security benefits, and limit increases to his Medicare premiums. By collaborating with both his tax accountant and financial planner, Frank is able to manage his taxable income effectively and prepare for future required minimum distributions.