The Pax Financial Blog

balancing tax mitigating strategies with an investment horizon

How San Antonio TX Comprehensive Financial Planning Can Reduce Your Tax Burden

Financial Planning, financial advisor San Antonio Nov 14th, 2022 by: Darryl Lyons

It’s a fact of life that your hard-earned income is always subject to local, state, and federal taxes. Your #1 strategy to help mitigate taxes is to have a comprehensive financial plan in place that ensures thoughtful tax planning in San Antonio, TX.

Use our tax planning guide to learn about ways you can protect your wealth and pursue your financial goals with the assistance of a Texas financial advisor. 

This article will cover seven strategies that can help you reduce your tax burden:

  1. Focus on long-term investing 
  2. Claim tax credits and/or deductions relevant to you
  3. Maximize contributions to employer-sponsored retirement accounts
  4. Consider investing in municipal bonds
  5. Consider starting a business
  6. Consider creating a Health Savings Account (HSA)
  7. Make charitable contributions

 

What is comprehensive financial planning?

Comprehensive financial planning includes a review of all aspects of your life, including your income, taxes, liabilities, and financial goals. From there, a plan is devised to address each aspect of your life as you move through various stages of your life (e.g., working years, pre-retirement, and retirement). 

A comprehensive financial plan serves as a road map of your financial life, with an emphasis on tax planning! As you look to grow your nest egg for a Texas retirement, let’s explore these tax planning strategies that can be a part of your customized, comprehensive financial plan.

 

1. Focus on long-term investments and capital gains

Investing is one of the most vital tools in growing your wealth because many investments can provide favorable tax treatment for long-term capital gains. This includes stocks, bonds, mutual funds, real estate, etc. 

Holding a capital asset for more than one year can provide you with a preferential tax rate of 0%, 15%, or 20% on the capital gain, which is dependent upon your income level. The capital gain is taxed at ordinary income rates if the asset is held for under a year before selling. 

Your financial advisor can assist in educating you about short-term versus long-term investments and associated capital gains rates. 

 

2. Claim IRS tax deductions and tax credits 

tax credits for san antonio texas financial planningClaiming federal tax credits and tax deductions on your tax return can potentially reduce the tax amount you owe each year. 

There are various credits for individuals to claim, which can be categorized into family and dependent, income and savings, homeowner, healthcare, and education.

Deductions can reduce your income amount before calculating taxes owed, which include categories of work-related, itemized, education, healthcare, and investment related.  

Talk to a CERTIFIED FINANCIAL PLANNER™ (CFP®) in Texas who knows your financial situation to determine what credits and deductions might benefit you.

 

3. Max out retirement account contributions

It may help to know that most retirement plan contribution limits are indexed to inflation. While these limits don’t increase annually, they generally do every year or two. Because inflation skyrocketed up to 9.1% in July, the 2023 contribution limits for many IRA accounts will increase. 

The 401(k) and 403(b) total employee contribution limits for those under 50 will increase to $22,500 in 2023 from $20,500 in 2022. The catch-up contribution limit will go up to $7,500 in 2023 from $6,500. If you're over 50, your 401(k) employee contribution limit looks to be $30,000 for next year.

Those who do not have a retirement plan through an employer can receive a tax break by contributing up to $6,000 ($7,000 for those 50 and older) to a traditional individual retirement account (IRA) in 2022. The Traditional and Roth IRA contribution limit will go up to $6,500 in 2023. 

Depending on your income, taxpayers with retirement plans in the workplace could possibly deduct a portion or all of their traditional IRA contribution from taxable income. Reach out to a financial advisor at PAX to discuss your adjusted gross income and your tax filing status to determine your best course of action.

 

4. Explore municipal bonds

Purchasing municipal bonds basically means lending money to a local or state governmental entity over a predetermined period for a specific number of tax-free interest payments. Upon its maturity, you will receive the full amount of the investment. Depending on where you live, tax exemptions may be available at local and state levels. 

The tax-equivalent yield makes municipal bonds attractive to many investors, and the higher your tax bracket, the higher your tax-equivalent yield

 

5. Consider starting a business from your passion or side hustle 

There are many tax advantages to operating a business, small or large. An essential task to reduce your tax burden is to deduct your daily business expenses from your income. For self-employed individuals, this can include health insurance premiums, home office deductions, and a portion of utilities/internet. 

Of course, your business must be profitable in order to claim any of the above deductions. If you have employees working under you, talk to us about the Secure Act, where tax incentives are offered to employers who opt in for multiple-employer plans and extend retirement options to employees. 

 

6.  Use a Health Savings Account (HSA)

texas investor reviewing her financial plan at her kitchen tableIf you have a high-deductible health insurance plan through your employer, you might want to investigate using a health savings account (HSA) to reduce taxes. HSA contributions, much like your 401(k), are deducted through payroll and excluded from your taxable income. 

The maximum deductible contribution level for individuals for 2022 is $3,650 and $7,300 for families. 

For 2023, the maximum deductible contribution level for individuals is $3,850 and $7,750 for families.

Your HSA funds can grow without paying tax on the earnings, and if used to pay for qualified medical expenses, withdrawals are also tax-free. The new limit for expected benefit health reimbursement arrangements (EBHRAs) in 2023 is $1,950. Individuals over age 55 with an HSA can contribute an extra $1,000 per year as a “catch-up” contribution.

Discuss your health insurance premiums with a financial advisor to see what makes sense for you and your family.

 

7.  Make charitable contributions to mitigate your tax bitE

Making charitable contributions can help you receive tax breaks while helping others—it’s a win-win! Doing so can reduce taxes for both estates and individuals by effectively reducing income tax liability because it allows you to deduct the donations from your gross income (before deductions). Discuss donating property or charity cash with a financial advisor in San Antonio, Texas. 

 

Next Step

The first step towards building tax strategies is working with an experienced Texas financial advisor who puts your best interests first. At PAX, we understand the importance of trust when handling your finances. Our team upholds the fiduciary standard which allows us to deliver unbiased financial services.

Let us show you how comprehensive financial planning with an emphasis on tax planning in San Antonio, TX, can help you pursue financial independence! If you earn more than $100K annually and don't want your hard-earned income impeded by taxes, give us a call or schedule your appt. today!

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This material is provided by PAX Financial Group, LLC. The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. The information herein has been derived from sources believed to be accurate. Please note: Investing involves risk, and past performance is no guarantee of future results. Investments will fluctuate and when redeemed may be worth more or less than when originally invested. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All market indices discussed are unmanaged and are not illustrative of any particular investment. Indices do not incur management fees, costs and expenses, and cannot be invested into directly. All economic and performance data is historical and not indicative of future results.

 



 

Darryl Lyons

Darryl Lyons

CEO and co-founder of the PAX Financial Group, Darryl Lyons has been a licensed professional in the financial services industry since 1999. A lifelong Texan, Darryl began his career in the financial sector just one day removed from earning his bachelor’s degree in corporate financial management and accounting at St. Mary’s University. Throughout his career, he has won awards for recruiting and development from Fortune 100 companies. In January 2007, he chose to begin and develop his independent practice. He joined Andres Gutierrez and Joseph Schuetze to form the PAX Financial Group. Darryl also served as the Chairman for Brooks Development Authority. Shortly after his service, Mayor Julian Castro, named a park “The Darryl W Lyons Park” in honor of his service. He was named to the 2010 San Antonio Business Journal’s “40 Under 40 Rising Stars,” which honors people making a difference in business and in the community.

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