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Tax Preparation and Your Financial Plan

Onyx Investments frequently monitors global tax law, in order to propose viable solutions for improving client real returns. Real return is the true measure of bottom-line performance, as this statistic subtracts both inflation and taxes away from nominal, gross returns.

On a grander scale, tax law will directly influence your lifestyle, as capital always flows into low-tax areas. The Sun Belt states are now exploding in growth, largely at the expense of the high-tax Rust Belt and Golden State.   

Our Clientele

Onyx financial planning clientele are typically concerned with the tax ramifications for trading investments, operating small businesses, and owning real estate. We are aware that tax law is structured to encourage long-term investing to build wealth, rather than rapid-fire trading.

Homeowners may deduct mortgage interest and property taxes from Federal taxable income, while very few states offer minimal renter’s credits.

Long-term capital gains and qualified dividends are granted special tax treatment, still as a result of the 2001 Economic Growth and Tax Relief Reconciliation Act, or Bush tax cuts. Lower tax rates apply to investments held for at least one year, before being sold off.

Tax Deductions Versus Tax Credits

The U.S. tax code is progressive, which means that higher levels of income are taxed at higher rates. A tax deduction is subtracted away from taxable income, prior to the ultimate calculation of total taxes owed. A tax credit, of course, generates more savings, as it directly reduces your tax bill upon a dollar-for-dollar basis.

Tax deductions and credits are now available for real property ownership, retirement savings, student loan debt, and business ownership. Onyx proactively communicates relevant changes in tax law to our clients throughout the year, in anticipation of filing season.

Retirement Plans and Tax Deferral

All retirement plans are notable for tax deferral. Interest income, dividend payments, and capital gains are not subject to taxes, as they occur within your account. In exchange for tax deferral, early retirement account withdrawals made before age 59 ½ are typically subject to severe tax penalties.

401(k), 403(b), and Traditional IRA contributions are made with pre-tax money, which immediately lowers your taxable income. Future 401(k), 403(b), and Traditional IRA distributions will then be taxed as ordinary income upon retirement. Now, at age 73, 401(k), Traditional IRA, SEP IRA, and SIMPLE account holders must begin taking required minimum distributions and paying taxes.

Alternatively, Roth IRA contributions are made with money that has already been taxed, which does allow for tax-free withdrawals at retirement. Roth IRAs are especially ideal for young professionals, who expect to retire in higher tax brackets.

The Political Agenda

Tax law is always dynamic and heavily politicized, as the balance of power appears to swing between right and left every other generation. We do recognize that the U.S. Government now functions through unfathomable budget deficits.

Future entitlement spending alone on Social Security and Medicare might tally up to a towering $100 trillion shortfall. Meanwhile, individual states like California, Illinois, and New York are all grappling with pension crises of their very own.

Interestingly, Middle America will find itself in the “tax and eat the rich” crosshairs. At this point, we may define anybody with any investment assets as “rich.” Expect a combined, effective tax rate of more than 20%.

Onyx Investments always stands at the ready to offer timely advice, prepare documents, and file tax paperwork as they all relate to comprehensive financial planning.

We build wealth with purpose. This is a movement. We have the green light.