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.

Building A $1.6 million Tax-Free Fortune For Just $15 A Day

Imagine this: As a young professional, you have the opportunity to retire with over $1.6 million in tax-free savings. It's not a fantasy; it's achievable by setting aside just $15 each day and wisely investing that money at the start of each year. Let me guide you through the process, inspired by principles from "The Bogleheads Guide To Investing," a valuable read.

Here's the deal: You must commit to saving $15 daily, consistently, from the age of 25 until you reach 65. If you can manage this, you'll be able to contribute and invest $5,475 annually into your Roth IRA at the beginning of each year. By doing so and aiming for a realistic 8% average annual return, you can build a substantial tax-free nest egg for your retirement.

Now, keep in mind that the financial market isn't a straight path, but that's fine. The 8% return is an average over time. If the idea of saving $15 daily seems daunting, take it step by step. Begin by tracking your spending for a month or two to uncover where your money flows. You may be surprised at how unnoticed dollars add up. With discipline, you can find a way to save and invest $15 a day, or $105 weekly, in a Roth IRA that grows tax-deferred and provides tax-free income during retirement.

If you start at age 25 and maintain an average annual return of 8%, your portfolio will blossom to a remarkable $1,650,742.95 by age 65—completely tax-free!

Should you delay until age 35 to begin, you can still amass a substantial nest egg, though significantly less. With an 8% annual return, your portfolio would be worth $724,937 at age 65.

Starting at age 29 falls somewhere in between, resulting in a portfolio worth $1,193,761 at age 65.

Even if you start at age 30, your portfolio would surpass $1 million, totaling $1,099,859 at age 65—tax-free.

Clearly, investing and harnessing the power of compounding interest require time to flourish. Begin saving early and invest consistently. These straightforward steps pave the way for lasting financial success.

In summary: initiate your savings journey early, set aside just $15 daily, and cultivate a tax-free fortune. Combine this with a healthy 401(k) contribution, social security income, and a mortgage-free home, and you could enjoy a comfortable retirement.

It's genuinely that simple—save, invest, and let your money work for you!

Here are the steps to build your tax-free small fortune:

1. Open a fee-free Roth IRA account with a brokerage firm of your choice.

2. Save $15 daily.

3. Deposit $5,475 into your Roth IRA at the start of each year.

4. Invest these funds in an index fund or a mix of funds with a realistic 8% annual return expectation.

5. Allow your savings, time, and compounding interest to grow until you reach age 65.

6. At age 65, revel in your tax-free, substantial nest egg.

*Note: Calculations assume an initial $5,475 investment at the beginning of year 1, using the compound interest calculator provided by MoneyChimp (http://www.moneychimp.com/calculator/compound_interest_calculator.htm).

**Historically, the S&P 500 has averaged an annual return of approximately 10-11% since its inception in 1926 through 2018 (source: Investopedia - https://www.investopedia.com/ask/answers/042415/what-average-annual-return-sp-500.asp).

***The average annual return (AAR) is a percentage used to report historical returns.

****Keep in mind that Roth IRAs have income limitations and phaseouts. Visit IRS.gov for current eligibility rules and contribution limits.

*****However, it's important to note that investment returns are not guaranteed, and the assumed 8% average annual return is a simplified estimate. The actual return on investments can vary significantly from year to year and may be affected by factors like market volatility, investment choices, and economic conditions.

Additionally, the calculations assume that the contributions are made at the beginning of each year and use a compound interest calculator as referenced. The specific calculations may vary slightly based on the compounding frequency and the exact timing of contributions.

For precise financial planning and retirement savings, it's advisable to consult with a financial advisor who can provide personalized guidance and consider your individual financial situation, risk tolerance, and investment goals.

About the author: Daniel Caycedo is an Investment & Tax Strategist and Financial 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.

5 Steps To A Faster Retirement For Sales Professionals

What action can you take to #retire faster as a sales professional? Here are 5 simple planning actions you can take to build wealth faster and achieve your own version of #FinancialFreedom.

1. Live off of your base salary for your living needs (House, Car, Living Expenses), and spend less than you make. Living off of your base salary helps you avoid "lifestyle creep", where your expenses increase along with your income, and empowers you to save more of your income.

2. Create an automated savings plan, with target savings percentages aligned with each of your financial goals, for anytime you come into money (commissions, bonuses, or anything else).

🧠 Example: $2,500 commission check; 25% to 401k, 50% to RE savings, 25% for lifestyle spending.

Then automate your savings contributions to be deducted from your checking account each time you get paid. In effect, "playing yourself first". Don't wait to save whatever is left over after spending at the end of the month. Save up front instead and prioritize your savings.

3. Never hold too much or too little in cash. Dial in your emergency level for you specific needs. Not enough cash means having to dip into longterm savings to cover a short term financial emergency. Too much cash means you're losing out on return from "opportunity cost" of that cash not working for you. So dial in your emergency fund to match 3-12 months of your living expenses, based upon what makes you sleep well at night.

4. Make your money work for you as hard as you work for it! #Invest your savings with a strategy to match your goal, timeframe, and tolerance for risk.

5. Stick to the plan! Consistency over time creates a compounding growth effect and generates results.

Taking action on these 5 planning items as a sales professional will get you to retirement faster, guaranteed! Future you will be happy you did.

About the author: Daniel Caycedo is an Investment & Tax Strategist and Financial 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.