Tax season is here, and for many of us, that means handing over our income to Uncle Sam.

If work is now in your rearview mirror, any money owed to the IRS will come out of your retirement income and savings. However, it’s possible to maximize your retirement income through proper tax planning. To help protect your finances, Ethos Capital Advisors is delivering 6 Smart Retirement Tax Strategies to help lower your Tax Bill for 2022 and beyond.

1. Make the Most of Fringe Benefits

Companies offer a variety of fringe benefit plans or on-the-job perks to employees that are non-taxable. Common benefits include disability, tuition reimbursement, health insurance, and flexible spending accounts. Aside from competitive wages and salaries, employees often find these benefits attractive due to the desirable tax breaks they’re afforded.

2. Open a Health Savings Account (HSA)

HSA contributions get deducted from an employee’s paycheck and are 100% tax-deductible. They help employees with high-deductible health insurance plans set aside pretax money to cushion the high cost of medical bills later.

For 2022, the maximum HSA limits are $3,650 for an individual, up from $3,600 in 2021 and $7,300 for family coverage. Those turning 55 can look forward to increasing their HSA contributions, with the IRS allowing contributions of $1,000 to cover additional expenses resulting from growing healthcare costs.

The 2020 Coronavirus Aid, Relief, and Economic Security (CARES) Act expanded the list of eligible items, including copays, eye exams, several over-the-counter medications, and more. If you qualify to make HSA contributions in 2022, you can expect to see a reduction in your end-of-year tax bill.

3. Start a Business

Business owners and self-employed workers can take advantage of special tax breaks, reducing how much they owe back at the end of the year. The Internal Revenue Service (IRS) allows individuals to deduct part of their home expenses such as home office deductions, phone bills, internet deductions, health insurance premiums deduction, and more as long as the taxpayer profits from their business.

4. Invest in Municipal Bonds

Municipal bonds are temporary loans issued by local government agencies in exchange for periodic interest payments. Interest known as “Munis” accrues over a fixed period and is not subject to federal income tax. If the bond is issued where you reside, you may also be exempt from state and local tax. When the bond reaches maturity, the buyer is refunded their original investment.

Investors are attracted to municipal bonds because of benefits, including lower interest rates, the tax-equivalent yields that stem from tax benefits, and tax-free interest payments.

5. Maximize With Capital Gains

Investments, including stocks, mutual funds, and bonds, can be an instrumental path to accumulating wealth, with real estate investments providing the most beneficial tax treatment for long-term capital gains.

Like qualified dividends, any gains held on investments for more than a year are classified as long-term. Tax rates for long-term gains go based on income level—single taxpayers who earn an annual salary of $40,000 ($80,000 for married couples filing jointly), the rate is 0%. Gains accrued can be tax-free, but only if income stays under the predetermined threshold.

In 2022, the zero rate bracket for long-term gains contributing towards taxable income requires single individuals to earn up to $41,675 and $83,350 for married couples.

If you’re uncertain how to go about selling appreciated or depreciated securities, it’s best to consult a financial adviser to help you minimize gains and maximize losses. Learn more about how financial advisors can help you pursue tax-smart strategies here.

6. Purchase Life Insurance or Annuity Plan

One of the reasons permanent life insurance policies run on a premium is that potential savings get factored in. A portion of the money spent on high-cost premiums goes towards the insurance itself, with the rest allocated to savings. Depending on an individual’s circumstances, a permanent life insurance policy offers an opportunity to produce retirement income that’s not subject to taxes.

In a similar vein, annuities guarantee a steady cash flow, giving retirees the option to begin withdrawing funds immediately upon depositing a lump sum or choosing to structure them as deferred benefits. Taxes get deferred once you start receiving your distributions or payments from your annuity.

If a tax filer purchases their plan using pre-tax funds, the money gets taxed as income, while those using post-tax funds are only required to pay taxes on earnings. One of the main benefits of purchasing an annuity is that they grow tax-deferred in the accumulation phase. However, annuities are complex financial vehicles. Certain drawbacks, such as early withdrawal taxation and difficulties getting money back after purchasing, don’t always make them the most affordable and viable option.

Speak to a financial advisor and start your retirement planning today.

If you’re looking to reduce your taxes in retirement, Ethos Capital Advisors can help you! We offer comprehensive tax planning to help further maximize and stretch retirement income. Schedule a meeting and speak to a financial adviser today about developing a tax-smart strategy that’s right for you.

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