Tax Reduction Strategies: What You Need To Know

November 16, 2019

Often when we think about having more money, we think we either have to a) make more money or b) adjust our budget. However, what if you didn’t have to do either of those? What if you could pay fewer taxes legally? 

Today, on the Advisory Group West blog, we are going to discuss the basics of tax planning: what it is, why it’s worth looking into, and how it fits into the overall general scope of your financial plan. If you are ready to learn how tax planning can help you achieve your financial goals, contact us to request a 15-minute complimentary strategy call. We would love to help you see the possibilities for your life and how you can better align your finances with your personal values. Visit our website today!  

Tax Planning Basics

We all have to pay taxes. It’s just a fact of life and paying taxes is the backbone for much of the infrastructure of this country. Though we understand the benefit of taxes, no one really loves paying taxes. That’s when it’s time to invest in tax reduction strategies. Tax reduction strategies aren’t a way to cheat the government out of money; it is a means to stop overpaying on taxes and to pay your required taxes in the most advantageous way and timing. 

If you are wanting to reach your financial goals you need tax planning and the personal financial advisors are going to tell you why. 


Tax planning is a proactive means to take advantage of future tax reductions. It could also be defined as optimizing your finances to be the most tax-efficient. Tax planning can not only keep more money in your pocket now, but could also help you contribute more money to your retirement savings funds. 

What Do We Consider During Tax Planning?

Unlike tax preparation, which we will discuss later, tax planning looks at all parts of your finances. Aspects that are considered include: 

  • Timing of income
  • Size
  • Timing of purchases
  • Planning expenses 
  • Types of investments
  • And more

All of these things are factored into your tax filing status and possible deductions. 

Understanding Tax Consequences

Your investments and savings all have consequences associated with your taxes. These consequences are felt particularly strongly during retirement — and can be quite detrimental to your retirement lifestyle and being able to stay retired. For example, tax-deferred retirement accounts (401(k)s, IRA, 403(b)s and others) will require that you pay taxes in retirement. The rates of your Social Security and Medicare can be affected by your taxable savings and investments. 

Fees that you can incur as a result of your tax-deferred retirement accounts can also have an impact; you may experience this when you roll over accounts, as a result of inheriting, and taking income distributions at the wrong time. When you are considering a financial move you must consider the consequences that it will have on your taxes. 


One strategy for lowering your taxable income is by contributing to a retirement account. An IRA can minimize gross income up to amounts as high as $7,000 (for age 50+). A 401(k) plan can also provide even higher limits of $19,000 or $25,000 for age 50+ in 2019. These are viable ways to reduce the amount of taxes you pay before you retire. 

Tax Reduction Strategies During Retirement

As we have mentioned, the purpose of tax planning is to maximize your income and reduce the amount of taxes you are required to pay. This must be strategized both before retirement and during retirement. Some of the ways to do that include: 

  • Taking advantage of tax-efficient asset allocation
  • Investing in a tax-managed portfolio design
  • Implementing tax-favored investment vehicles
  • Developing a reliable cash flow that utilizes all tax-saving strategies including taxable, tax-deductible, tax-deferred, and tax-free savings
  • Managing capital gains tax
  • Utilizing strategies for tax management of taxable investment accounts (tax lot accounting, tax-loss harvesting, tax-aware trading)

Questions You Must Answer for Successful Tax Planning

When our personal financial advisors work with our clients, we help answer several questions that are crucial for successful tax planning. Those questions include: 

  • In what order should I withdraw money from my retirement savings accounts?
  • How can I increase my after-tax returns by reducing my taxes on investments?
  • What impact will required minimum distributions (RMDs) from retirement accounts have on my future income and taxes? 
  • Can I increase my tax benefits with charitable gifting and legacy strategies? 

If you don’t know the answers to these questions, then it is time to develop a sound tax reduction strategy. 

Tax Management Strategies: Important Terms to Know

The tax reduction strategy that your advisor will help you develop will differ based on your needs. To put yourself ahead of most clients who are investing in tax planning for the first time, it is important that you know these terms: 

  • Tax lot accounting – a means of tracking the cost, purchase date, and sale date of each security unit in a portfolio.
  • Tax-harvesting – a tax reduction strategy that utilizes a portfolio’s losses to offset overall capital gains.
  • Tax-aware investing – a means of enhancing investment performance by capitalizing on the most advantageous tax strategies.

This list is by no means exhaustive but can give you a clearer picture of what tax planning may look like for you. 

What is Tax Preparation?

You may be wondering what the difference is between tax planning and tax preparation. Tax planning is a proactive means for optimizing all areas of your finances for the most favorable outcome relating to taxes. 

Tax preparation is the process of gathering all relevant materials and submitting your taxes to the state and federal government for the year. Tax preparation can save you money when you invest in the help of a professional CPA. However, tax preparation does not prepare you for the future or optimize your finances — it simply allows you to successfully submit your yearly taxes. 

It’s Time to Learn About the Possibilities

Anyone can benefit from tax planning. However, it is crucial as you approach retirement and into retirement. To learn about how to successfully utilize tax planning strategies to your advantage, make an appointment with our personal financial advisors. We provide a Complimentary Cornerstone Vissions™ Strategy Session to help answer your questions and jump start your tax planning strategy. 

If you are ready to maximize your income and minimize your taxes, it’s time to contact Advisory Group West — your Top Rated Local® financial advisors in Glendale.