Asset LocationAsset Location is a technique that can greatly enhance the amount of return that's kept and not paid out in taxes.
Asset Location refers to how an investor distributes their investments over taxable accounts such as a Trust brokerage accounts, tax-deferred accounts such as IRAs and 401Ks, and tax-exempt accounts such as Roth IRAs and Roth 401Ks.
Allocating assets that pay the lower long term capital gains tax rates to your taxable accounts and allocating assets that pay higher income tax rates to tax deferred and tax exempt accounts allows investors to keep more of the return they make.
This technique requires skillful planning and execution in order to achieve.
Shifting of assets can often trigger a taxable transaction with unintended consequences which is why a thoughtful, skillful process in needed. We strive to achieve this for all of our clients.
Tax Management StrategiesWe consider these three methods used in legal tax planning:
- Avoiding Taxes
- Involves the use of exclusions, credits and certain deduction to legitimately reduce taxes.
- Deferring Taxes
- Doesn't produce a permanent reduction in taxes just reduces current taxes.
- Shifts highly taxed income into lower, more favorably taxed income.
A main objective of financial planning is to structure your assets and financial affairs to amass the greatest amount of wealth possible. When fewer dollars are paid in taxes, more money is available to work towards accumulation of wealth.
In implementing investment strategies with you, we'll employ legitimate methods and smart tax planning to reduce, defer, or avoid taxes.
Understanding the tax rules on capital gains, both short and long term, and income such as interest and dividends are key to developing the appropriate strategy.
Paying attention to the tax rules on both short and long term capital gains—plus those that affect income from interest and dividends—is a part of developing the right strategy for you.