Now that April 15 has passed, you’re probably over the idea of taxes. But taxes aren’t just something you should think about when it comes time to file, especially if you’re a business owner or entrepreneur. You should have some passing knowledge of taxes, new changes that affect your business, and how to leverage that knowledge so you don’t pay more than you have to.
This week on Worth It, Dustin and Danielle are giving you a brief rundown of three tax topics they think every taxpayer should understand: new tax rules, ETF strategies, and capital gains and losses
Keeping up with the tax code isn’t your job, but understanding major changes is a huge benefit to you. To make this is a bit easier, Dustin and Danielle break it down for you. In the episode, they talk about new tax changes that are allowing taxpayers to bring home more from their paychecks, but that also means they’re not getting a refund. For many people who are accustomed to receiving a refund, this may come as a shock. But Dustin and Danielle explain this is actually good news: it means you’re paying less in taxes upfront and keeping more throughout the year.
But for those who are used to using that big tax refund to roll into retirement or business profit, it can be a bummer. That’s why Dustin and Danielle walk you through the importance of monthly retirement contributions. Tune in if you want to learn more about the tax benefits of contributing to your retirement accounts throughout the year.
They also talk about new maximums for retirement and health savings accounts. As of 2019, the new maximums are:
As usual, Dustin and Danielle recommend maxing out your accounts so that you can build wealth, so keep these numbers in mind as you contribute throughout the year. If you are unsure about the difference between these retirement accounts, you can also check out Worth It Episode 62, where Dustin and Danielle break down the most common types of retirement accounts for business owners and self-employed individuals.
One element of taxes that many people don’t know — or understand — is ETFs. ETFs stand for Exchange Traded Funds, and they can be important to all of your taxable accounts (savings, investments, etc.). With ETFs, Dustin and Danielle explain, you don’t have to pay out capital gains distributions each year. This means that you don’t have to pay extra taxes.
But the main reason people should use ETFs, they explain, is because you can use tax loss harvesting. Tax loss harvesting is the selling of securities or investments at a loss to offset a capital gains tax liability. This is useful because, if you sell a fund for a gain, you have to pay taxes on that gain. These can be taxed at a very high rate. But with tax loss harvesting, you can sell ETFs that have collected losses to avoid paying those capital gains taxes. While this can be complicated, it’s a useful tax strategy to keep in mind, especially when speaking to your tax professional or financial advisor. Ask your financial advisor if they know this strategy and, if they don’t, move on to someone who does.
Capital gains are essentially a profit you make from the sale of an asset, such as a stock. A capital loss, on the other hand, is the loss you pay if you sell an asset for less than you purchased it. When you receive capital gains, you have to pay taxes on that, but when you collect a capital loss, you can deduct it. A lot of people don’t know this, as Dustin and Danielle explain, so it goes unaccounted for on year-end taxes. But you can actually deduct up to $3,000 of capital losses each year on your taxes. In the episode, Dustin and Danielle talk about the importance of working with both a CERTIFIED FINANCIAL PLANNER™ professional and Certified Public Accountant to ensure that capital gains and losses are taken into account on your long-term investment strategy and your yearly tax filings. They also recommend that you look at all your capital gains and losses by November 30, which is something they do for all of their clients. This ensures that capital losses are properly accounted for and that you have a good picture of the taxes you will owe on capital gains and losses come April 15.
Of course, if you’re like most people, all of this tax information can be overwhelming. That’s why Dustin and Danielle recommend having a team of financial professionals on your side. By understanding these tax rules and strategies, at least in theory, you can make sure to hire only the professionals who can leverage these strategies for your ultimate benefit.
If you’re wondering where to find a CERTIFIED FINANCIAL PLANNER™ professional who can help, check out the quiz below to see if Toujours Planning is right for you.
This material is for general information only and is not intended to provide specific advice or recommendations for any individual.
There can be no guarantee that strategies promoted will be successful and no guarantee of positive results. All investing involves risk including loss of principal. No strategy assures success or protects against loss. This information is not intended to be a substitute for specific individualized tax advice.
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