Review Your Tax Planning Strategies
A Comprehensive Look at Reducing Your Income Tax Burden
With marginal tax rates of up to 37% in 2024, income taxes can have a significant effect on your financial situation. Reduce your income tax burden with these key strategies: 1) Minimize taxes by utilizing tax-advantaged investments like municipal bonds and capital gains, and offsetting gains with losses. 2) Postpone tax payments through retirement accounts and other tax-deferred options. 3) Shift the tax burden by gifting assets to lower-income individuals.
1. Reduce or eliminate taxes.
The objective is to receive income in a nontaxable form or to find additional tax deductions, exemptions, or credits. For instance, you might want to consider municipal bonds, whose interest income is generally not subject to federal, and sometimes state and local, income taxes. Investigate investments that generate capital gains, such as growth stocks. Gains are not taxed until you actually sell the investment, and if held for over one year, capital gains are subject to capital gains tax.
Under current tax law, you pay no more than 15% to the U.S. Treasury on long-term capital gains from selling investments held for over one year on amounts up to: The 15% rate applies to income up to $533,400 for singles, $600,050 for married joint-filing couples, $566,700 for heads of households in 2024 (in 2024 these figures were $518,900, $583,750, $551,350 respectively).
The same rate applies to qualified dividends.
Capital gains on investments held less than a year are short-term capital gains and taxed at ordinary income tax rates of 10, 12, 22, 24, 32, 35 and 37% in 2025 (and 2024).
If you have realized capital gains, you might want to offset those gains by selling investments with losses. Or consider investments that pay qualified dividends, which are taxed at capital gains tax rates.
“By strategically utilizing tax-advantaged investments, deferring tax payments, and considering tax burden shifting strategies, you can significantly reduce your income tax liability and maximize your financial resources.”
2. Postpone the payment of income taxes until sometime in the future.
By postponing tax payments, your earnings compound on the entire balance, including the portion that will eventually be paid in taxes. You may also be in a lower tax bracket when taxes are paid. As an example, contribute as much as possible to retirement accounts, including employer plans and individual retirement accounts (IRAs).
3. Shift the tax burden to another individual.
The objective of this technique is to transfer assets to other individuals so any income on those assets becomes taxable to those individuals, who may be in lower tax brackets. Typically, however, you must give up control of the asset. For instance, annually you can give tax-free gifts, up to $19,000 or $38,000 in 2025 (up from $18,000 and $36,000 respectively in 2024) if the gift is split with your spouse, to any number of individuals. Any future income generated on those gifts then becomes taxable to those individuals. You may also want to use your lifetime gift tax exclusion which rises to $13.99 million for 2025 (up from $13.61 million in 2024) to make larger gifts.
Maximizing Your Tax Savings
Minimizing your income tax burden requires a multifaceted approach. Strategies include reducing taxable income through tax-free investments like municipal bonds and capital gains planning, postponing tax payments through retirement contributions, and shifting the tax burden through gifting strategies within applicable limits. By carefully considering these approaches and consulting with a qualified tax advisor, you can effectively manage your tax liability and optimize your overall financial well-being.
Disclaimer: This article provides general information and should not be considered professional financial or tax advice. Please consult with a qualified CPA or financial advisor for guidance specific to your individual business needs.
Questions?
Kristin is a CPA with over a decade of experience, specializing in tax services for pass-through entities and complex individual tax situations. She serves clients across various industries, including real estate, wholesaling, and professional services. Kristin provides strategic guidance to help clients navigate their financial landscape confidently.