You’ve filed your taxes. Now is the time to learn from your return what you can do to reduce your tax burden in the coming year and years beyond with a post-tax wealth review.
Understanding your income
Of the many insights your return can provide, one opportunity stems from understanding where your income is being generated.
- Lines 2a Tax-exempt interest and 2b Taxable interest: Based on your income level, you might be paying taxes on interest income unnecessarily, which could be addressed by moving investments to tax-exempt money market funds or other fixed income investments.
- Line 3a Qualified dividends: Qualified dividends are taxed at the lower long-term capital gains rate, while unqualified dividends are taxed at your higher ordinary income rate. The tax-saving opportunity is in converting investments that produce unqualified income to those that produce qualified income.
- Line 4a IRA distributions: Taking IRA distribution over age 65 could result in a higher income-based Medicare premium. You might avoid taking IRA distributions if you don’t need the income. The following chart provides monthly premium amounts for various ranges of modified adjusted gross income:
Source: Medicare.gov
If you are over the age of your required beginning date, currently age 73 in 2025, for taking required minimum distributions, planning could involve donating IRA assets to charity through Qualified Charitable Distributions (QCDs). If your return shows significant RMDs, you might want to relocate your IRA assets, such as by donating to a qualified charity or converting taxable amounts to a Roth IRA to create a next generation tax-free asset. You might also lower account production by reallocation, selling stocks and buying bonds.
- Line 7 Capital gain (or loss): An excess of either gains or losses might tell a story. If you have excessive gains, you could use tax loss harvesting to offset the gains with losses. You can use losses plus $3,000 to offset gains and carry over excessive losses to offset gains in future years. Excessive gains or losses could signal too much turnover in trading activity, which could trigger unnecessary taxes, indicating the need for a full investment review. You might also consider relocating assets in a qualified account for better tax sheltering.
Understanding your tax rate
The arguments for understanding your income and making available adjustments for tax purposes are underscored by the differences in the tax rates you pay based on your taxable income. The Federal tax brackets are progressive, meaning that income is taxed at higher rates as it reaches higher thresholds. Your marginal tax bracket reflects the tax rate applied to your last dollar of income. Recognizing this rate and where your income falls withing the tax brackets is crucial to effective planning because it determines the value of deductions, credits, and implementation of other strategies. For tax year 2025, the top tax rate remains 37 percent for individual single taxpayers with incomes greater than $626,350 ($751,600 for married couples filing jointly).
Source: https://www.irs.gov/newsroom/irs-releases-tax-inflation-adjustments-for-tax-year-2025
Developing your tax planning strategies
Once you have reviewed your tax return, you can begin to work on implementing various tax-saving strategies. Among the types of strategies, you might employ:
- Investment Management
- Tax-efficient investments
- Capital gains timing: long-term vs. short-term
- Asset location
- Qualified dividends
- Charitable Donations
- Itemized deductions
- Bunching contributions with a donor-advised fund
- QCDs
- Gifting appreciated assets
- Retirement Contributions
- Participate in employer-sponsored retirement plans or open your own if you are self-employed. At a minimum, contribute the matching contribution amount for any employer-sponsored plan.
- Catch-up contributions; 2025 super catch-up contributions for ages 60 through 63
- Roth IRA Conversions
- Strategic timing during lower income years
- Tax Loss (or Gain) Harvesting
- Tax loss harvesting
- Tax gain harvesting: large carry-forward loss, either from marketable securities or a closely held business.
Conducting a comprehensive review of your return with your financial advisor is an effective way to find areas to reduce your tax burden. HBKS advisors can help. We have the unique benefit of access to and ongoing collaboration with the CPAs of our partner firm, HBK CPAs & Consultants, a Top 50 U.S. accounting firm.
For more information or to schedule an interview with an HBK tax expert, call us at (814) 836-5776; or email me at ptaylor@hbkswealth.com.
Important Disclosures
The information included in this document is for general, informational purposes only. It does not contain any investment advice and does not address any individual facts and circumstances. As such, it cannot be relied on as providing any investment advice. If you would like investment advice regarding your specific facts and circumstances, please contact a qualified financial advisor.
Any investment involves some degree of risk, and different types of investments involve varying degrees of risk, including loss of principal. It should not be assumed that future performance of any specific investment, strategy or allocation (including those recommended by HBKS® Wealth Advisors) will be profitable or equal the corresponding indicated or intended results or performance level(s). Past performance of any security, indices, strategy or allocation may not be indicative of future results.
The historical and current information as to rules, laws, guidelines or benefits contained in this document is a summary of information obtained from or prepared by other sources. It has not been independently verified but was obtained from sources believed to be reliable. HBKS® Wealth Advisors does not guarantee the accuracy of this information and does not assume liability for any errors in information obtained from or prepared by these other sources.
