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PRINCETON, NJ, March 05, 2011 /24-7PressRelease/ -- It's that time of the year when stories abound on tax tips for reducing your tax liability. Unfortunately these stories offer little help because they tell you about a deduction or a tax credit you could have had if you had only bought this or sold that. Of course the only catch is that these tax breaks were on something you had to have done last year, and if you didn't do that something, then you are out of luck.
The best financial planning advice is always plan ahead. For 2011 there are a couple basic things almost anyone can do to minimize their tax liability now and trough out their retirement. First, it's important to understand that one size "financial plan" doesn't fit all. Nor does any tax or investment strategy result in the same financial benefit for everyone, so you need to either build a spread sheet to do the calculations or get an off the shelf "financial planning software" that incorporates an actual federal and state income tax return in the retirement planning projection. Avoid simple retirement planning software or those "free retirement calculators", they typify the old adage, you get what you pay for. A good professional financial planning software will help you review and create a financial planning strategy that allows you to see how much the tax benefit will be, and if you have the financial ability to take advantage of some of these tax planning strategies.
A good example of a personal financial planning software that is available on the Internet is ExecPlan Express, and though this is a tool used by professional advisors, accountants and insurance agents, it is easy enough for almost anyone to use. They provide a 30-day evaluation copy at their website, www.execplanexpress.com that will provide you enough time to evaluate your own personal tax planning strategy. "Though professional planners are our core clients for the past 30 years," says Robert Fourman sales and marketing director for ExecPlan Express, "our free trial version has drawn a lot of attention from individuals seeking to manage their own personal finances."
Once you have a way to project your income and estimate your tax liability, then you are ready to explore what strategies to begin with for 2011. The first thing to work with is that Congress has extended the lower tax rates for 2011 and 2012. They also provided a "fix for AMT" only for 2010 and 2011. And finally starting in 2013 all income over $250,000 including IRA distributions, annuity payments, capital gains and interest and dividends will begin to be subject to a new 3.8% Medicare surcharge tax from the recently passed healthcare bill. Since it is unlikely tax rates will fall in the future, the best strategies evolve around moving as much income forward over the next two years. However how much depends on what tax bracket you are in now and what brackets you will be in the near future. This is where a personal financial planning software is helpful. The personal finance software as opposed to hand calculations will provide financial statements that show where you are in a bracket and whether you have AMT. The financial planning software should also allow easy testing of different planning scenarios to see what makes the most financial sense over the long haul.
Some of the simplest and most cost effective ways of moving income forward are Roth conversions from qualified plans and "capturing" capital gains from highly appreciated investment assets. Be careful though, all financial planning strategies have downsides. For example you may face restrictions from liquidating a Roth IRA, and converting your highly appreciated stocks will take away the step up in cost basis that your heirs would have received if you never needed to liquidate the stock. For individuals with annuities or business interest who were planning to sell them in the near future, they may want to start the process now. Annuitizing the sales over a longer window, may help keep you tax exposure below that $250,000 ceiling for the new Medicare investment surcharge tax ultimately reducing the taxation on the sale of these assets and in turn increase their overall rate of return.
With any of these strategies as well as almost any tax planning advice, you need to try it on first before you buy it. How they may help depends on your personal financial situation your long term financial concerns and your retirement goals. The best way to really evaluate what will work best is to crunch the numbers or seek a professional financial planner to help guide you to the right answers. The key to a successful retirement planning strategy is effective tax planning, and the current low tax rates provides the potential for significant long term tax savings that consumers will miss if they don't act now.
Sawhney Systems is a provided of comprehensive financial planning software for the professional financial advisor. For information on our products ExecPlan and ExecPlan Express please contact us at (800)850-8444 or http://execplanexpress.com.
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