By Professor Anthony Rivieccio MBA PFA
Let’s be honest! You want a billion dollar tax refund next year, don’t you? Did you know that’s predicted on the tax planning strategies you implemented for 2021. Did you?
Well, some of my smart Clients do, and make 20-40% more on their tax refund, just by doing some life style tweaking. Most of my Clients though, no , they think tax preparation-not tax Planning— is the key to that billion dollar refund.
Well let me put that another way in simple layman turns: If you implement tax strategies , especially as early in the year as possible, then you don’t have to worry about tax preparation, or April 15th being the way to a great refund- unless your looking to commit fraud?
So let me share some last minute tips that can still give you significant savings- for next year!
But let’s use Brady, a New Yorker, single making $50,000, in a Federal, NY City and State combined 40% tax bracket.
* Sell your losing InvestmentsSelling your investment losses will bring in significant tax savings. If you had any capital gains, it will of course offset , the tax on the gains. More so , you are allowed to write off up to $3,000 in Capital losses. Based on Brady’s tax bracket: A $3000 loss is a $1,200 tax savings. In your tax refund, it could be up to $480. So look into your investments for capital losses which means bigger tax refunds.
* Invest in your At Work Retirement planToday most Americans have a work retirement plan of some sort. A 401k, 457b, 403b, and the maximum contribution that one can put in for 2021 is $19,500. Now why is that important? That’s pre tax! So , every time Brady saves $1000 into his retirement plan , pre-tax, he is in essence lowering his taxable income. So, for every $1,000 pre-tax, to Brady, is a $400 tax savings which translates to a tax refund of an extra $160. So if Brady is putting in $5,000, tax refund wise, is $800.
* A W-4 AdjustmentYep everyone wants that billion dollar refund but what we have to understand , or what I call , step 1 of taxes, is : what is the right amount you should have paid in taxes– before tax deductions and credits in the first place? Or in simple terms: what is your true Gross tax bracket?
We all want to pay our fair share in taxes, sadly some what both: pay little taxes during the year– then want a billion back at the end of the year! Yes, really!.
I have Clients, that try that on occasion. At the end of the day, their refund is about the size of that new bag of 50 cent potato chips that shrunk 30%. Of course , this is where I try to explain to them that everyone must pay their Gross tax bracket first— then everything after that— now when you apply your tax deductions and credits, the tax refund will smell and taste like that old $1 bag of potato chips ( not that $2 new fraudulent or the 50 cent bag) . The $1 bag means your in your right tax bracket or slightly overpaying your taxes. The $2 bag means your underpaying
Long story short, once Brady figures out his Gross tax bracket, he should ask his human resource department for a w-4 form . Brady, realizing one of the reasons he was not getting a great refund was because he was underpaying his taxes by $1,000 every year. By Brady adjusting his w-4 to take out an extra $90 a month, in essence, his tax refund will increase by $1,000 , because he is now, in his right Gross tax bracket.
So yes, long term, Brady should start his 2022 tax planning, January 1st!. So by December 31st 2022, he can capture all of the tax planning strategies that apply to him- so April 15th of 2023, that’s when he’ll feel like- excuse the tax politics, Donald Trump.
But alas, Brady is like 80% of Americans, no planning! No refund! So Brady, and Americans, do the above tips, now, and happy holidays.
Professor Anthony Rivieccio, MBA PFA, is the founder of The Financial Advisors Group, celebrating its 25th year as a full service financial planning & investment firm . Anthony is also owner of Rivieccio Financial Advisors, a virtual only financial advisory firm, opened in 2021. Mr. Rivieccio, a recognized financial expert since 1986, has been featured by many national and local media including: Kiplinger’s Personal Finance, The New York Post, News 12 The Bronx, Bloomberg News Radio, BronxNet Television, the Norwood News, The West Side Manhattan Gazette, Labor Press Magazine, Financial Planning Magazine, WINS 1010 Radio, The Co-Op City News, The New York Parrot, The Bronx News, thisisthebronX.info , The Bronx Chronicle & The Parkchester Times. Mr. Rivieccio also pens a financial article called “Money Talk”. Anthony is also currently an Adjunct Professor of Business, Finance & Accounting for both, City University of New York & Monroe College, a Private University. To learn about our new Financial Focus Learning Center, filled with FREE; financial & market News, Radio, TV & Webinars, just call or email for a brochure. For financial assistance, Anthony can be reached at (347) 575-5045. Have Facebook? My email is firstname.lastname@example.org My personal page is www.facebook.com/anthonyfromthebronx