MYM #004: 13 Key Tax Strategies for Salaried Employees

Today, I'm going to teach you some powerful tax planning strategies that salaried employees can consider. 

Tax planning matters because it can help minimize your tax liability, maximize your savings, and ultimately keep more of your hard-earned money in your pocket. By considering these strategies, you can take control of your finances and make the most of your income.

Unfortunately, most people fail to optimize their tax strategy because they lack awareness or overlook key opportunities. 

Equip yourself with the knowledge, and don’t leave the IRS a tip come tax time because you didn’t know better. However, make sure you do it right.

IRS: you owe us money :(
Me: how much?
IRS: guess :)
Me: this much?
IRS: No :( Jail ;)

— Taylor Cox (@ImTaylorCox) February 8, 2021

Key Strategies

1. Maximize Retirement Contributions
2. Utilize Tax-Efficient Strategies for Taxable Investment Accounts
3. Tax Loss Harvesting
4. Backdoor Roth Contributions
5. Health Savings Account (HSA)
6. Mortgage Interest Deduction
7. Medical and Dental Expenses Deduction
8. Charitable Contributions Deduction:
9. State and Local Taxes (SALT) Deduction
10. Residential Energy Efficiency Credit
11. Keep track of unreimbursed job-related expenses
12. Investigate education-related tax benefits
13. Research state-specific tax opportunities

🎯 Maximize Retirement Contributions:

Contributing to retirement accounts like 401(k)s or IRAs not only helps secure your financial future but also offers valuable tax benefits. By maximizing your contributions, you can reduce your taxable income while building a nest egg for retirement. Aim to contribute the maximum allowed by your employer-sponsored retirement plan and explore the benefits of contributing to an individual retirement account (IRA) as well.

2023 Retirement Account Contribution Limits:

• Traditional & Roth IRA: $6,500

• Traditional & Roth 401(k): $22,500

• SEP IRA: $66,000

• Simple IRA: $15,500

• 403(b) & 457(b): $22,500

Here’s a closer look at how each plan has changed this year:

— Mark Wlosinski (@LTI_finance) June 19, 2023

🎯 Utilize Tax-Efficient Strategies for Taxable Investment Accounts:

When it comes to taxable investment accounts, such as individual brokerage accounts, you can employ strategies that provide tax-efficient growth and reduce the tax burden on investment income. Consider investing in municipal bonds in these accounts, which are often exempt from federal taxes and can provide tax-free income. Additionally, opt for index funds or ETFs with low turnover to minimize capital gains distributions, thereby reducing taxable events.

🎯 Tax Loss Harvesting:

Another powerful strategy is tax loss harvesting, where you strategically sell investments that have decreased in value to offset any capital gains they may have incurred. By realizing these losses, you can offset taxable gains, potentially reducing your overall taxable income. Be mindful of the "wash-sale" rule, which prohibits repurchasing the same or substantially identical investment within 30 days to maintain eligibility for the loss deduction.

🎯 Backdoor Roth Contributions:

If your income exceeds the limits for contributing directly to a Roth IRA, exploring the backdoor Roth IRA strategy may be advantageous. It involves contributing to a traditional IRA and then converting it to a Roth IRA. This strategy can potentially enable tax-free growth and withdrawals in the future. However, consulting a tax professional to understand the tax implications and ensure it aligns with your specific circumstances is essential.

🎯 Health Savings Account (HSA):

An HSA offers a triple-tax advantage, allowing you to contribute pre-tax dollars, accumulate tax-free growth, and withdraw funds tax-free for qualified medical expenses. By utilizing an HSA, you can optimize your healthcare expenses and save on taxes. If you have an eligible high-deductible health insurance plan, contribute to an HSA and maximize your contributions to take full advantage of this tax-advantaged account.

🎯 Mortgage Interest Deduction:

If you own a home and have a mortgage, the mortgage interest deduction can help lower your taxable income. This deduction allows you to deduct the interest paid on your mortgage, potentially resulting in significant tax savings. Keep track of your mortgage interest payments and consult with a tax professional to ensure you're maximizing this deduction within the applicable limits.

🎯 Medical and Dental Expenses Deduction:

You may be eligible to deduct certain medical and dental expenses that exceed a certain percentage of your adjusted gross income (AGI). These expenses can include doctor's visits, prescriptions, and certain medical procedures. Keeping track of these expenses can potentially reduce your tax liability. Consult with a tax professional to understand the criteria and documentation required to claim this deduction.

🎯 Charitable Contributions Deduction:

By making donations to qualified charities, you can claim a deduction on your tax return. This not only allows you to support causes you care about but also provides a valuable tax benefit. Keep records of your charitable contributions, including receipts and acknowledgment letters, to substantiate your deductions. Ensure the organization you donate to qualifies for tax-deductible donations.

🎯 State and Local Taxes (SALT) Deduction:

Depending on your jurisdiction, you may be able to deduct state and local taxes paid from your federal tax return. Understanding the rules and limitations of this deduction can help optimize your tax strategy. Keep track of state income taxes, property taxes, and other eligible taxes you pay throughout the year. Consult with a tax professional to determine the maximum allowable deduction based on current tax laws.

🎯 Residential Energy Efficiency Credit:

Investing in energy-efficient home improvements, such as solar panels or energy-efficient windows, can make you eligible for a tax credit. This credit helps offset the cost of improvements while promoting sustainability. Research the specific requirements and credit amounts available for energy-efficient upgrades to your home. Consult with a tax professional to ensure you meet the eligibility criteria and properly claim the credit.

🎯 Keep track of unreimbursed job-related expenses:

If you incur job-related expenses that your employer does not reimburse, you may be able to deduct them on your tax return. These expenses can include business travel, professional development courses, or necessary equipment. Maintaining proper records and understanding the eligibility criteria are crucial for maximizing this deduction. Keep a detailed log of your expenses, including receipts and supporting documentation, to substantiate your deductions.

🎯 Investigate education-related tax benefits:

If you're pursuing higher education or supporting a dependent's education, there are various tax benefits available. Researching and leveraging these opportunities can help ease the financial burden of educational expenses. Explore education tax credits, deductions, and savings plans to determine which ones apply to your situation. The Lifetime Learning Credit and the American Opportunity Credit are two examples. Consult with a tax professional or financial advisor to ensure you're taking full advantage of available education-related tax benefits.

🎯 Research state-specific tax opportunities:

Each state has its own tax laws and incentives. Taking the time to understand your state's specific tax opportunities can provide additional avenues for savings and optimizing your tax strategy. Start by visiting your state's official tax website, which usually provides comprehensive information on state tax laws, credits, deductions, and exemptions. Look for resources like tax guides, FAQs, and forms specific to your state. Additionally, consider seeking guidance from a local tax professional or attending tax workshops and seminars offered by reputable organizations in your area. By conducting thorough research and staying informed about state-specific tax opportunities, you can uncover valuable strategies to reduce your tax burden further.

Actionable Tip:

Go through each key point discussed. Determine if you are utilizing the strategy. 

If you are perfect, if you’re not, determine if you should be. 

As tax planning can be complex, consider consulting with a qualified tax professional or financial advisor who can help you navigate the nuances and tailor the strategies to your unique situation. 

They can provide personalized advice based on your income, deductions, and long-term financial goals, ensuring you make the most of your tax planning efforts.

That's all for today! By exploring these tax planning strategies, you'll be well on your way to optimizing your tax situation and securing a brighter financial future.

Whenever you're ready, there are 2 ways we can help you:

​1. The Master Your Money System. Transform your personal finances into an automated machine with our Master Your Money system. This comprehensive video course will teach you the automated system we use to serve our millionaire private client base to maximize every dollar earned.

2. Become part of our private client group. If you’re in your 30’s or 40’s, earning more that $150,000 of income, and looking to maximize every dollar earned, but need speed and convenience, consider booking a meeting with us to see if we should join forces to work one-on-one.