Hi!
We spent all week brainstorming immediate actions you can take now that can save you tax.
Since we now have a financial advisory team, we took an investment perspective this time. Please read to the end – there is an important note.
The structure is meant to be as helpful and easy as possible:
- Where to look on your prior year taxes
- What to look for
- Why it matters, with a quick dollar/percent example
If you want us to complete these checks for you, just reply back – we can do that on a complimentary basis.
1) The basics: Are you leaving easy shelters unused?
Where to check
- W‑2: Box 12 for 401k or equivalents
- Form 1040 Schedule 1: Lines for IRA, SEP, solo 401(k) contributions
- Your pay stubs (or ask HR)
- Your business returns (if applicable) under pension plans
What to look for
- If you are an employee and can afford to do so, retirement contributions should be the annual limit. What is the annual taxable income reduction limit? $24,500 per person and $32,500 per person if you are over 50
- If you are a business owner, the deduction limit is $72k for starters but can be hundreds of thousands (yes, you heard right) if you use a defined benefit plan or cash balance plan
Why it matters (example)
- In the 32% federal bracket, an extra $20,000 to a 401(k) or SEP cuts current‑year federal tax by about $6,400, plus state where applicable
- For business owners, a SEP, solo 401(k), or similar plan reduces current‑year federal tax by about $23,040, plus any state tax savings. This deduction further skyrockets if combined with a cash balance plan!
2) Are your bonds actually tax-efficient?
What to look for
- High taxable interest on line 2b / Schedule B of your Form 1040
- Little or no tax‑exempt interest on line 2a
- You’re in a mid‑to‑high bracket (24%+ federal)
Why it matters (example)
- $500,000 in taxable bonds at 4.5% = $22,500 interest
- At a 35% combined tax rate, tax ≈ $7,875; net yield ≈ 2.9%
- A 3.2% municipal bond fund that’s federally tax‑free has a tax‑equivalent yield around 4.9% at a 35% marginal rate, so your after‑tax income could be $3-4k/year higher just by shifting how that bond exposure is held
3) Are you sitting on too much cash?
What to look for
- Large bank interest (multiple banks/credit unions on Schedule B)
- Very little in dividends and low capital gains activity despite high income
Why it matters (example)
- $1,000,000 in a high‑yield savings or money market account at 4% earns about $40,000/year, taxed each year.
- If your true time horizon for $500,000 of that is 5-10 years and you instead target a conservative, diversified portfolio aiming for, say, 7-8% long‑term, that half could generate $35-40k/year instead of $20k/year – roughly $15-20k/year more expected return, compounded over time.
4) Are you overpaying tax on short‑term gains?
What to look for
- On your returns, large short‑term gains and relatively small long‑term gains on Schedule D or Form 8949
- Brokerage statement detail for 2025 indicating the same – large short term capital gains in light of the long term gains
- This is especially painful if your ordinary bracket is 32-37%
Why it matters (example)
- $150,000 of short‑term gains in a 37% bracket ≈ $55,500 of tax.
- The same $150,000 as long‑term at, say, 15-20% would be about $22,500-$30,000 of tax.
- That’s roughly $25-33k of extra tax in a single year purely from holding period, not from what you’re invested in.
5) Are you missing tax‑loss harvesting?
Before you roll your eyes and say “this is too much work,” there are automated funds that do this for you now!
What to look for
- Net capital gains and no capital loss carryover on schedule D
- Very few loss positions realized despite a year where markets were choppy (on Form 8949 or on your brokerage statements)
Why it matters (example)
- Realized losses can offset gains dollar‑for‑dollar and then up to $3,000 of ordinary income per year, with unlimited carryforward
- Systematic harvesting during bad months in a sizable portfolio can easily bank $10-30k of losses, worth thousands in tax savings over time while you maintain similar market exposure
- Most importantly, there are funds that do this automatically for you
Why did I ask that you read to the end?
Well, because there are 5-7 more actionable, immediate suggestions, but this email is getting long!
So, what can we do? Two options:
- Reply to this email & we will send you the full checklist!
- Reply to this email for the full checklist AND a complimentary consultation with an advisor. Our advisor can spot-check everything for you!
How we can help
If any of these checklist items raise questions:
- Our team includes Certified Financial Planners and Registered Investment Advisors adding decades of combined experience with our tax strategy team
- We can walk through your latest return and portfolio and highlight 2-3 specific moves tailored to your bracket, location, investment mix, and risk preference
- If you would like a short review, reply to this email to schedule a 10-15 minute optimization call
Even a few small adjustments – better bond placement, strategic use of losses, proper retirement planning, or cleaning up K‑1s – can easily add thousands of dollars per year to your long‑term after‑tax outcome.
Looking forward to speaking!
—
George Dimov CPA
www.dimovtax.com
(833) 829-1120 toll free
This checklist is for informational and educational purposes only and is not individualized tax, legal, or investment advice. Investment advisory services are offered through our registered investment adviser; please review our Form ADV before acting on any investment ideas.
