What is Tax Planning? Tax planning is the strategic process of managing finances to reduce tax liability and align with long-term goals. It helps preserve wealth, maximize savings, and ensure compliance with evolving tax laws.
Why is Tax Planning Important? Tax planning isn’t just about saving money—it’s about aligning strategies with future goals. Benefits include:
Savings: Reduce taxable income with deductions, credits, and exemptions.
Wealth Preservation: Protect assets for future generations.
Investment Optimization: Place investments in tax-efficient accounts.
Core Tax Planning Strategies:
Tax-Loss Harvesting: Offsetting gains with losses to reduce taxable income.
Asset Location Optimization: Placing investments in accounts that provide the most favorable tax treatment.
Maximizing Tax-Advantaged Accounts: Leveraging 401(k)s, IRAs, HSAs, and other accounts to lower taxable income.
Roth IRA Conversions: Managing taxable income now to benefit from tax-free growth and withdrawals later.
Charitable Contributions: Enhancing deductions through planned gifting strategies.
Estate Planning: Minimizing estate taxes through lifetime gifting, trusts, and exemptions.
2024 has been a year of uncertainty. The world endured several surprise wars, a jittery economy, and an indecisive Federal Reserve. Headlines wavered between impending doom and potential boon. Our two Presidential candidates espoused divergent visions of our country’s future. Even fundamental economic principles, such as the relationship between growth and inflation, were called into question.
The year also brought some good news — at least for investors. As of December 2nd, the S&P 500 was up nearly 27% in 2024. Meanwhile, the tech-heavy NASDAQ grew over 29% and the Dow Jones gained 19% for the year. While investor rationale is up for debate, the bottom line is simple. Investors who remained disciplined were rewarded handsomely. Those who avoided markets missed out.
Investors should apply similar discipline this tax season. My recent election article explains that it is difficult to predict future legislative changes. Fortunately, there are various tried-and-true tax planning tips available in any environment. Some are even tailored specifically for today’s political climate.
The following six tax planning strategies are worth discussing with a financial advisor, accountant, and/or attorney. Note that certain strategies are complex and require personalized guidance.
In prior commentaries, I’ve discussed the “Fed watch” game. When would the Fed cut interest rates? By how much? With every consensus “guess” in one direction or the other, the markets bounced pretty much in lockstep. The Fed answered the questions in late September with a larger than expected rate cut of 50 basis points (one half of one percent). The markets reacted favorably with strong returns in every asset class.
In the past I’ve also devoted a lot of ink to the “Magnificent 7” big tech stocks that have dominated the market, accounting for most of the major index returns. The third quarter saw a reversal as the big tech Nasdaq composite index returned 2.1%, while the S&P index gained 5.9%. Nonetheless, the Mag 7 still accounted for 45% of the S&P 500’s return year to date. The rate cut has led to a welcome broadening of the market as small company growth stocks out-performed large company stocks and value stocks outdid growth stocks. Bottom line: more stocks are participating in the market rally.
The U.S. equity market rally has continued through the first three weeks of October. International stocks and bonds have not fared as well. The yield on the 10-year Treasury has increased to 4.2%, driving prices down.
The Fed’s rate cut reflected its confidence that inflation has been tamed, even though it’s not at its 2% target. The unexpected size of the rate cut raised concerns that the Fed foresaw a weakening economy and sought to engineer a “soft landing” thereby forestalling a recession. Economic reports have been generally positive over the last few weeks, now leading to speculation that the Fed may now make fewer than expected rate cuts this year. Inflation is not gone, just accelerating at a slower pace, after having reached a painfully high 9%. Unfortunately, many of the inflated prices we see every day are likely to be permanent.
De-dollarisation refers to the process by which countries reduce their reliance on the U.S. dollar in international trade, finance, and reserves. This shift typically involves promoting the use of alternative currencies, such as local or regional currencies, for trade settlements, foreign reserves, and investment transactions. The goal of de-dollarisation is to decrease dependency on the U.S. dollar and the influence of U.S. monetary policy on national economies.
Countries pursue de-dollarisation for various reasons, including:
Reducing vulnerability to U.S. sanctions or economic pressures.
Mitigating exchange rate risks linked to the U.S. dollar.
Strengthening national currencies by promoting their use in global markets.
In recent years, BRICS countries and others have discussed de-dollarisation as a strategy to create a more balanced global financial system, with some exploring trade agreements in alternative currencies like the Chinese yuan or the euro.
