Tax Tips: 'Tis the Season!

That’s right. We made it through another summer and a damp winter (at least here in California). If there is one thing about taxes that I've learned since my last article, it is that minimizing your taxes is cool. Don’t worry. No one other than the IRS will require you to show your returns – even if you run for President. Last tax season, I suggested making sure that your federal/state withholdings were appropriate for your financial situation and to utilize tax-deductible retirements. Read it here for a quick review. This year, I will share more ideas to help you keep more of what you make!

Retirement Accounts are Tax Shelters

Sometimes clients are less eager to contribute to a retirement account than they are to a liquid non-retirement account that they can access. It is important to think of retirement accounts for what they really are –tax shelters. Taxes can be nasty in non-retirement accounts: capital gains taxes, dividend taxes – there are so many different ways to be taxed in a non-retirement account. This is not the case in a retirement account. In fact, the growth compounds and grows on itself. If you want to keep more for yourself then you have to shelter what you can.

Make a Double IRA Contribution

The IRA limits for 2017 have not changed. If you have earned-income that exceeds $5,500 then you can make an IRA contribution up to that amount. If you are age 50 and over then you can make a $6,500 contribution. If you have an employer sponsored plan at work, like a 401(k), then you want to check with your CPA/accountant about the deductibility of your IRA contribution – the limits are a lot lower than you think.

If your income qualifies, you might want to look into a Roth IRA which will allow you to withdraw money in retirement tax-free (as long as you have the account for at least 5 years). Now you might have known most of this already –but did you know that you can still make an IRA contribution for 2016? The IRS allows you to make prior year contributions up until the tax deadline which for this year is April 18th, 2017. If you have not made your 2016 IRA contribution yet, do not let this opportunity pass you by!

Roth IRAs and Roth 401(k)s

I briefly mentioned a Roth IRA while talking about a double IRA contribution. As a financial planner I look at a lot of different factors when making recommendations to clients. When we think about retirement accounts it is important to note that the IRS is going to try and tax you during your lifetime on that money. If your contributions go in pre-tax or are tax-deductible then you will pay ordinary income taxes at withdrawal. If my clients expect their earning potential to be much higher in the future, then I normally advise for them to utilize the Roth IRA. The problem is that there are income qualifications for the Roth IRA and those clients who grew accustomed to “paying the taxes now” get upset when they can no longer contribute. However, there are no income qualifications for utilizing a Roth 401(k). As long as your employer offers a Roth 401(k) as an option, you can contribute regardless of your income. If you aren’t sure what makes sense, ask your tax advisor.

By Zachary Bainter
Managing Partner

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which course of action may be appropriate for you, please consult with your tax advisor before making any decisions.

Financial advisors at Gerber Kawasaki are registered representatives with, and securities offered through, LPL Financial, Member FINRA/SIPC. Investment advice offered through Gerber Kawasaki Inc, a registered investment advisor and separate entity from LPL Financial. Please consult your investment professional before acting on any advice.

Gerber Kawasaki Wealth Management, 2716 Ocean Park Blvd. #2022 Santa Monica, CA 90405. Contact us at (310) 441-9393.