When it comes to managing personal finances, it can be tricky to know how to proceed. While many people start focusing all of their energy on taking care of the things they need at the moment, the truth of the matter is that there are a lot of things you can do to disrupt your finances that may be easy to ignore at first. For starters, it is crucial to move forward and identify tax issues, even if you haven't focused on them quite yet. Check out these short posts to learn more about how you could be faced with tax problems, and how to resolve the situation for the long run.
Wealth management is about more than just making additional money. It's also about preserving it for the future. And one of the most important ways you can do this is to understand how timing affects your finances. Not sure what timing has to do with good management? Here are four key areas where it matters.
1. Tax Strategies
Timing is a big deal for your income tax bill. Accelerating or deferring income and deductions allows you to spread these out for maximum savings. Waiting until the right moment to sell investments keeps your capital gains taxes at their lowest and helps you harvest losses to negate taxes on gains. And the schedule of payments for things like selling a business or leaving a partnership will raise or lower income taxes.
2. Asset Purchases and Sales
There is a best time to buy and sell large assets too. A large purchase for a closely held business, for instance, offers deductions for depreciation — often up to the full amount of the asset — in the year in which you buy it. And how long you intend to keep a capital asset before selling it will determine the tax rate you pay.
The timing of a sale is often of more financial value than the purchase. If you sell a home too early or too late, you may miss out on the capital gains exemptions for primary homes. This is particularly important for accidental landlords or real estate investors. And, of course, selling assets in a good market boosts your return on investment.
3. Retirement Funds Use
You save up significant money to use for retirement, but you must follow the rules for each type of account when it comes to timing. Many taxpayers find it useful to contribute to retirement accounts for the prior year when completing income tax forms so they maximize tax benefits. You would also need to understand when you must begin withdrawing required minimum distributions to avoid penalties.
4. Market Timing
Many investors unwisely try to "time the market" — buying and selling at just the right moments, While this strategy is often a losing one, other timing factors are helpful. The earlier you invest, for instance, the less you have to put away in order to earn the same (or better) returns. Holding assets for more than a year avoids unnecessary taxation. And adjusting your risk as you approach goals fosters stability.
There is a lot to consider when it comes to the right moment to do many things involving your finances. Finding the best timing for anything from recognizing income to lowering your investment risk helps protect your money. Want to know more about timing in your specific circumstances? Start by meeting with a wealth management professional today.Share
28 September 2020