3 Reasons Not to Lower Your Taxes

It may seem like backwards reasoning to not lower your tax liability, but it really is for the best in terms of having more money available for retirement and capital investment. There is a right time and place to lower your taxes. This should also be done carefully and in the right sectors of your financial portfolio. But there are scenarios in which lowering your general tax liability is not the best option. Below we will highlight reasons for why lowering your liability may not be preferable.

Roth IRA and 401K

When you work with Roth IRAs and 401K retirement savings plans, you have more money available at retirement. The younger you begin your Roth accounts, the more funds you will have available. It can also reduce your tax liability in retirement, and that is when you need those funds the most.

Deliberately Offset Capital Losses

Depending on your financial situation, intentionally offsetting a capital loss with a gain may be the right idea. A capital gain is defined as profiting from the purchase of stocks, investments or other appreciating assets. A capital loss is the opposite. Canceling out a loss may be the right option.

Gift Assets

Consider gifting substantial assets to children. The future income derived from those assets is taxed at a lower rate upon selling the asset. Unearned income tax applies to earnings over $2100. Gifted assets are taxed at the “kiddie tax” and “child tax” rates rather than the rates which apply to traditional capital gains, profit and income.

Closing Thoughts

What it boils down to is that lowering your tax liability may turn around to cause trouble later. Keep your tax liabilities where they are and do not lower your income, shift assets or make harsh decisions until you have spoken with your financial advisor to ensure that it is the right move.

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