Individual Tax planning Strategies: SHIFT INCOME
Before we start it is important to choose between paying taxes now or in retirement. Take the tax benefit when your marginal rate is the highest.
Here are 3 additional tips to help you lower your overall tax burden by shifting your income:
Accelerate income before 2026. In most years, tax pros look for opportunities to defer your income. But with tax rates expected to rise, now may be the time to do the opposite: accelerate your income. While doing so means your taxable income may increase in the next couple of years, it’s smart to pay taxes while rates are low. Potentially higher capital gains taxes in future years mean you may want to consider if it makes sense to realize gains in taxable accounts before a possible increase. Or if you expect losses next year, you might consider waiting until future years when you could possibly benefit from offsetting capital gains when they could be taxed at potentially higher rate
Defer income starting in 2026. If your taxes do go up in 2026, it may be time to defer income again. The idea here is to pay taxes on your money later when rates are (hopefully) more favorable. One way you can do this is by making traditional (pretax) contributions to your 401(k) or other retirement account. If you decide to switch from making Roth (post-tax) to traditional contributions to your employer-sponsored plan, you may even offset some of the pain that higher tax rates will inflict on your paycheck.
Give income-producing assets to children. Shift income to a child or grandchild in a lower tax bracket than you. Income taxed to you at a rate as high as 37% might be taxed to your child or grandchild at just 10% or 12%. Shifting taxable income also reduces your AGI making you eligible for other tax benefits.
Any questions? Please reach out! Call +1 800-808-5009 during business hours and ask for David, or send me an email anytime at DGearhart@registax.com!
