Post Tax Season Planning Tips

Tax season has come and gone, but that does not mean the planning stops! While much of your focus prior to April 18th may have been on making sure you get your tax return submitted properly, the focus can now shift towards some other items that can improve your financial well-being over the course of the rest of the year.

Things to Keep In Mind Post Tax Season

1.) Capital Gains: One item that may have showed up on your 2021 returns would be capital gains. Capital gains are the taxable growth inside of non-retirement investment accounts that create a tax liability in the year they occur.

As your non-retirement accounts grow in value, the IRS taxes that growth. Our goal is to keep capital gains to a minimum each year, but the reality is that when the accounts experience growth (as they did in 2020), rebalancing the portfolio can cause some of those gains to be taxable. Although no one is excited to pay taxes, paying taxes on growth is far superior to the alternative—no growth, or even loss, in the accounts.

We always recommend that clients monitor the amount of capital gains that have been realized throughout the course of the year and consult with a tax professional to determine if any action should be taken prior to tax time.

2.) Roth Conversions: Another item that many of our client’s returns for 2021 reflected would be a Roth conversion. This is a strategy in which we move retirement dollars from a pre-tax retirement account into a tax-free (Roth) retirement account. This allows future growth to occur tax-free, but the amount moved between the accounts is taxable in the year that the conversion occurs.

Roth conversions are a big part of our planning strategy at Creekmur Wealth Advisors, and many clients have a plan in place to strategically move dollars into a tax-free status. However, this strategy is not right for everyone. If you have pre-tax dollars in an IRA and have not looked into the possibility of Roth conversions, now is a good time to speak with your advisor about whether that would be beneficial to you. We would want to get updated financial information from you and then run analysis to determine whether you could benefit from the strategy.

Although tax season comes once a year, tax planning is a year round discipline. At Creekmur Wealth Advisors we factor tax planning into all of our recommendations, but if it has been a while since you have met with your advisor or you feel you need a refresher on the tax implications of your current strategy, let’s set up a time to talk.