2024 Tax Planning, Minimization, & Savings Opportunities with Figures From The IRS Updates

With the dawn of a new year comes a wave of changes to tax laws and fresh opportunities for tax minimization within your financial planning! The recent release of IRS figures for 2024 signals the perfect time to embark on your Financial & Tax Planning journey for the new year, adopting a proactive approach to tax minimization.

At CayDen, our clients frequently hear us emphasize the value of proactive planning, which translates into saving hundreds to thousands of dollars on taxes both in the present and future—an easy financial win-win. In light of the palpable impact of inflation over the past couple of years, which may have adversely affected your short-term savings rate, it's reassuring to witness the IRS providing inflation adjustments that can directly benefit our financial situations. The simple prescription? Plan strategically to maximize your situation and minimize your taxes. Let's delve into the 2024 financial and tax planning opportunities.

Planning Highlights of the IRS Updated Financial Figures for 2024:

(Click the carrot next to the figures below to read more about the changes)

$1,500 Increase To The Standard Deduction

The standard deduction for married couples filing jointly for tax year 2024 rises to $29,200, an increase of $1,500 from tax year 2023.

For single taxpayers and married individuals filing separately, the standard deduction rises to $14,600 for 2024, an increase of $750 from 2023;

and for heads of households, the standard deduction will be $21,900 for tax year 2024, an increase of $1,100 from the amount for tax year 2023.

$500 Increase To Individual Retirement Accounts Contribution Limits

$500 Increase To Company Retirement Account Contribution Limits

$400 Increase To Earned Income Tax Credit

Increases To The Marginal Rates, But Top Rate Remains 37%

$1,000 Increase To Gifting Limits

7% Increase to HSA Contribution Limits

The items listed above represent just a snapshot of the IRS-announced adjustments for tax year 2024. These figures are universally and critically important for successful financial planning and wealth-building, especially during the accumulation phase of your financial journey. While these adjustments are significant, it's essential to recognize that your specific situation may present unique tax planning opportunities. Therefore, we strongly recommend thorough research into tax law changes or, even better, consulting with a professional tax advisor to tailor your strategy and maximize your specific financial situation.

Big Tax Minimization Opportunities For Individuals & Couples

For an individual maximizing contributions to both a 401(k) and HSA, the potential reduction in taxable income is an impressive $27,150.

A couple, married filing jointly, could save and reduce their taxable income by a substantial $54,300. This translates to tremendous tax savings that benefit both the present and future. Your contributions not only decrease your income today but also grow tax-deferred into the future.

According to CayDen Wealth Management's Senior Wealth Advisor and CFP® professional, Shane Dennehy, "Maximizing retirement accounts each year provides a dollar-for-dollar reduction in your taxable income, helping you pay less in taxes and can also prevent you from entering a higher marginal tax bracket, or even lower the bracket you are in." This underscores the importance of regular financial planning and tax minimization to adapt to the dynamic nature of life and changing laws. Proactively planning your household finances can result in savings ranging from hundreds to thousands of dollars on taxes, providing you with more resources to allocate towards what matters most to you.

In essence, proactive planning is a gift to both your present and future selves. With the IRS providing inflation-adjusted figures, the ball is now in your court. Engaging in proactive financial and tax planning not only positions you to pay less in taxes but also to save more money and foster the growth of your wealth. Seeking professional help? Don't hesitate to reach out. Your financial future awaits.

About the author: Daniel Caycedo is an Investment & Tax Strategist and Wealth Management Advisor for CayDen Wealth Management, a Colorado registered investment advisory firm with offices located in Broomfield, Colorado and Charlotte, North Carolina. Daniel works out of CayDen Wealth Management's Charlotte office, providing virtual, fiduciary, comprehensive wealth management and tax services for high performing professionals and their families. Services include proactive Financial Planning, Investment Management, & Tax Services.

Long-term Success Benchmarks & Rules of Thumb for Household Financial Planning, by CayDen

CayDen' Financial Planning Benchmarks & Rules of Thumb

I often come across clients that know what they want to achieve financially, meaning they have goals for themselves and their families. But oftentimes they are unsure of how to get where they want to be. There is a plethora of information available on the internet about how to manage personal finances, so much in fact, that it can be overwhelming to figure out how to apply the information to your individual situation. After all, your financial journey is unique and dynamic to you, with lots of little moving parts to manage. There are many things you can get wrong or right. And your first job is to not blow it! General financial rules of thumb and CayDen’s Financial Planning Benchmarks can further help you succeed financially, now, and over the long run.

Detailed, proactive and comprehensive financial planning is worth it, but it also takes a lot of time and likely necessitates help from a financial planning professional. However, these general rules of thumb and CayDen’s Financial Planning Benchmarks can help you broadly stay on track to reach your financial goals. Some core foundational categories you can focus on, for strong overall financial health and the construction of a sturdy financial foundation include; budgeting, building and maintaining an emergency fund, making yourself attractive to Home Mortgage lenders, and saving for a comfortable retirement. Use these CayDen Planning Benchmarks to confidently plan for the future.

Budgeting

Budgeting. You may be rolling your eyes when you hear the term “Budget”, but the fact is that Cash Flow Analysis, aka “Budgeting” is an important aspect of your financial planning. Having a clear understanding of where your money is coming from, and where it is going to, is incredibly important for planning for the future. Having a clear understanding of your resources and cash flow sets the first layer of bricks on your solid financial foundation.

An accurate budget helps you clearly identify your target living expenses (needs), discretionary expenses (wants), and your surplus (savings) or deficit. Below you will find benchmarks for your three core budgeting categories, “Needs”, “Wants, & “Savings”.

Needs vs Wants vs Savings (Based On Take Home Pay)

• 50% Needs

• Housing, food, car-related expenses, medical expenses, and minimum debt payments

• 30% Wants

• Clothing, entertainment, vacations, and restaurants

• 20% Savings

• Emergency Fund, retirement plan, brokerage account, and extra payments towards debt(s)

Emergency Fund

Your Emergency Fund is your smart place to access money from when you need it most. It’s not a question of IF a financial rainy day will come your way, but WHEN. So you need to be prepared for the certainty of life’s uncertainty.

Emergency Funds can be held in a checking, savings, or brokerage account. But the primary goal of your Emergency Fund is liquidity and accessibility. Therefore it should be in cash or cash-equivalent, liquid investments, such as a Money Market Mutual Fund.

Emergency Fund Rules Of Thumb (Target nominal funding level)

• Single

• 3-6 months worth of Living Expenses

• Dual Income Household (no dependents)

• 3-6 months of Living Expenses

• Dual Income Household with Dependents

• 6-12 months of Living Expenses

• In Retirement

• 12-24 months after accounting for other predictable income sources

Home Purchase

Purchasing a primary home will be one of your largest financial transactions. Since it is unlikely you will be able to afford a house with your cash savings alone, you will likely need to acquire financing from a lender. Mortgage lenders are going to closely examine your financial situation to determine how much they will lend to you and on what terms. With this purchase being one of your largest lifetime financial transactions, you want to ensure that you are getting the best terms available. To get an attractive mortgage interest rate, you must have an attractive financial situation in the eyes of the lenders. Below are benchmarks to keep in mind for being attractive to a Mortgage Lender.

Home Purchasing Benchmarks

28%: Target having less than 28% of your pre-tax income set to go towards Principal and Interest, Property Tax, HOA Fees, and Homeowner Insurance Premiums.

36%: Target having less than 36% of your pre-tax income to service all forms of debt (student loans, revolving consumer debt, auto loans, mortgage, etc.)

20% Down Payment. A 20% downpayment is the most cost-effective approach because it means you avoid paying Primary Mortgage Insurance (PMI). PMI is a cost with no return on investment for you. So it should be avoided when possible.

Retirement Savings

The two biggest questions I get from my clients are: 1. How much do I need to retire? and 2. When can I retire?

Well, it depends on when you start! The more time that you have to save and invest for retirement, the better. The lower your current living expenses are, and the higher your savings rate, the faster you will reach your own version of Financial Freedom. Below are some benchmarks to keep in mind for targeted retirement savings.

Retirement Savings Benchmarks:

• If you start in your 20s, save 10% - 15% of your salary, including your employee match, per year for retirement

• If you start in your 30s, save 15% - 20% of your salary, including your employee match, per year for retirement

• If you start in your 40s, save 25% - 35% of your salary, including your employee match, per year for retirement

• If you start in your 50s or later, save as much as possible! You may have to consider retiring later too.

Remember, these benchmarks and financial rules of thumb can’t replace proactive, consistent financial planning. But they can help you maintain strong overall financial health and put you in a position, with focus and hard work, to realize your financial goals over the long run.

Want help from a CERTIFIED FINANCIAL PLANNER™ professional? Reach out today by emailing us at invest@caydenwm.com. Or, schedule your Free Financial Review and Intro Meeting using this link: https://calendly.com/caydenwealthmanagement/introductory-call?month=2023-10

About the author: Shane Dennehy is a CERTIFIED FINANCIAL PLANNER™ professional, as well as the President and Sr. Wealth Management Advisor at CayDen Wealth Management, a Colorado registered investment advisory firm with offices located in Broomfield, Colorado and Charlotte, North Carolina. Shane works out of CayDen Wealth Management's Broomfield office, providing virtual, fiduciary, comprehensive wealth management and tax services for high performing professionals and their families. Services include proactive Financial Planning, Investment Management, & Tax Services.

Tax Minimization Planning for Sales Executives

Everyone I know hates paying taxes. Sales Executives are not alone in their disdain. However, not everyone is willing to take the necessary steps in advance to reduce their tax burden when tax season arrives. Frustrations with tax professionals AFTER the tax bill is determined are misguided. Paying less in taxes requires careful planning and forethought. Are you dedicating the time each year to minimize your tax liability? If not, you may be leaving money on the table, and worse, handing that money over to the government (IRS).

As a Sales Executive, often earning a substantial six-figure income from base pay alone, you stand to benefit significantly from proactive tax planning to minimize your tax liability and maximize your long-term wealth building. Taxes paid to the IRS, which could otherwise be avoided with proper tax planning, simply translate to less money in your pocket and bank account.

Reducing your tax burden and optimizing your effective tax rate necessitates proactive tax and financial planning. One effective approach is to engage a professional tax strategist and advisor, like CayDen. Let's explore some of the strategies we employ at CayDen to help our Sales Executive clients minimize their tax obligations:

1. Dial in the W2

2. Maximize Pre-Tax Deductions

3. Tax-Efficient Retirement Savings

4. Tax-Efficient Investment Portfolio Management

Dialing in your W2

Your W2 withholdings dictate the amount taken from your paycheck to cover taxes. If you received a tax refund last year, it means you can be more efficient with your W2 withholdings. Adjusting these withholdings can increase the cash flow on your paycheck, allowing you to save more.

Maximizing Pre-Tax Deductions

There are two significant levers you can pull for tax planning that provide immediate and long-term financial benefits. These are contributing to your 401k or employer-provided retirement account and contributing to your HSA if you have a high-deductible health care plan. Maximizing contributions to these accounts is one of the most effective ways to reduce your taxable income and lower your effective tax rate. Not to mention the benefit of the savings growing tax-deferred for your future needs.

In 2023, you could save up to:

• $26,350 as an Individual, filing Single. ($22,500 401k contribution + $3,850 HSA contribution)

• $52,750 as a Family , Married filing Jointly ($45,000 401k contributions + $7,750 HSA contribution)

Those are two HUGE tax reductions! Because keep in mind that contributions to your 401k and HSA are dollar-for-dollar reductions of your taxable income.

Another valuable pre-tax deduction, if your employer provides it and you're not in a high deductible health plan, is a Dependable Care Flexible Spending Account. These accounts allow you to withhold pre-tax money to cover qualified child care expenses, reducing your taxable income for the year. In effect this lowers your taxes owed at year-end for expenses you know you will have anyway. It's a great benefit to take advantage of if your employer offers it.

Tax-Efficient Retirement Savings Strategies

Back-Door Roth Conversions and Mega Back Door Roth Conversions are advanced tax and retirement planning techniques that allow you to invest more money into tax-free Roth IRAs, even if you exceed the traditional income limits for Roth IRA contributions. However, it's important to note that these strategies come with significant tax implications and considerations, making it advisable to consult a tax advisor.

Tax-Efficient Investment & Portfolio Management

Strategies such as tax-loss harvesting and tax-efficient investment management can help minimize taxes over the long term. They take advantage of opportunities to lock in capital gains losses during market downturns and maintain your desired long-term asset allocation. Building a diversified investment portfolio and diversifying your tax-advantaged accounts can contribute to reducing the total taxes you pay over your lifetime. Investing in proactive tax planning can yield lifelong financial returns, leaving more money in your pocket and accelerating your wealth-building journey.

As you can see, proactive tax planning can lead to substantial savings for Sales Executives like yourself throughout your career and into retirement. The pursuit of wealth building and minimizing taxes go hand in hand.

*Everyone's tax situation is unique. This should not be construed as advice. Please consult with a tax advisor and/or financial planner to discuss your specific situation.

If you're interested in reducing your taxes and planning for long-term wealth, we're here to help. Reach out to us for a complimentary financial and tax review. Schedule your meeting here: Meeting Scheduler Link or contact us via email at invest@caydenwm.com. We eagerly anticipate the opportunity to assist you in saving, planning, investing, and minimizing your taxes on your path to achieving your own vision of financial freedom.

About the author: Daniel Caycedo is an Investment & Tax Strategist and Wealth Management Advisor for CayDen Wealth Management, a Colorado registered investment advisory firm with offices located in Broomfield, Colorado and Charlotte, North Carolina. Daniel works out of CayDen Wealth Management's Charlotte office, providing virtual, fiduciary, comprehensive wealth management and tax services for high performing professionals and their families. Services include proactive Financial Planning, Investment Management, & Tax Services.