Tax Planning Strategies

William Miller |

Following a solid tax planning strategy throughout the year is a key part of any financial plan, and there are several strategies you should think about to help maximize your refund or minimize your liability.

Are you taking advantage of the following tax-saving strategies with your return?

1. Retirement Contributions to Traditional IRAs

Many people fail to take advantage of their annual retirement contribution limits and miss out on reducing their taxable income. Traditional IRA contributions are made with pre-tax dollars and are not taxed until withdrawal, so maximizing contributions could keep some individuals from running over into a higher income tax bracket. Contributions to 401(k)s and 403(b)s must be made by December 31st to impact your 2020 taxes, but the deadline for making traditional IRA contributions is April 15, 2021.

2. Health Savings Accounts (HSA)

Health Savings Accounts are the only triple tax advantage account. There are many benefits to an HSA including how they are taxed.

  • Contributions to the account are tax deductible up to the contribution amounts per year ($3,600/individual and $7,200/family). If you are over 55 you many contribute an additional $1,000/year.
  • The growth in the account is tax deferred like an IRA/401(k)/403(b).
  • With medical expenses being one of your largest bills, making the last tax benefit to an HSA is the most important. When you use the money for a qualifying medical expense it is a tax-free distribution.

3. Contribute to Charity

Donating to your favorite charity is a great way to reduce your taxable income, but there are several options to explore.

  • Donate Cash or Goods to a qualifying charity. It is important to document and have receipts.
  • Contribute to a Donor-Advised Fund (DAF). This strategy allows donors to allocate a lump sum of funds to be distributed to various charities over multiple years. This works especially well if the individual is in a high tax bracket and is looking to offset the increased income.
  • Donate your Required Minimum Distribution (RMD). Owners over age 70 ½ can transfer up to $100,000 tax-free directly from their IRA to a qualified charity. Keep in mind that charitable contributions can only be made from IRAs, so you may need to first perform a rollover if you are looking to use funds from a non-qualifying account.

4. Take Deductions Early

The other side of the business planning strategy is accelerating expenses that can be used as deductions in the current year. For example, if you know your business will be hiring a vendor in January, you may request to pay for their services in advance in order to deduct them from your current year’s income.

5. Tax-Loss Harvesting

This strategy involves intentionally selling investments at a loss to offset capital gains that resulted from selling securities at a profit or up to $3,000 in non-investment income. However, there is a limitation to this practice. To prevent taxpayers from taking advantage of this perk, the IRS implements the “wash-sale” rule which nullifies a loss claim if the same or nearly identical security is re-purchased within 30 days of the sale.

6. Roth Conversion

A roth conversion is where you transfer funds from an IRA account (pre-tax) to a Roth IRA (post tax). You do this by paying taxes on the funds that you want to transfer. The benefit to this strategy is that in the future you will not be subject to required minimum distribution and the withdrawal will be tax free. To calculate what this could mean for you, here is a link to a Fidelity calculator.


There are many other tax planning strategies and like with any plan worth implementing, preparation is essential—especially when time-sensitive moves and deadlines are involved.


*This content is developed from sources believed to be providing accurate information. The information provided is not written or intended as tax, legal, or investment advice and may not be relied on for purposes of avoiding any federal tax penalties. Individuals are encouraged to seek advice from their accountant, financial planner, and counsel. Neither the information presented, nor any opinion expressed constitutes a representation by WM Wealth Planning as a specific recommendation to the purchase or sale of any securities/investment. Asset allocation and diversification do not ensure a profit or protect against loss in declining markets. This material was developed and produced by WM Wealth Planning for educational purposes.*