Reducing Taxable Income: Guide for High-Income-Earners in Paramus, NJ

In the borough of Paramus, NJ, many high-net-worth individuals and families are searching for effective ways and strategies to optimize their earnings and minimize their tax liabilities. This article unveils key strategies that affluent families use in Paramus, NJ, to lighten their tax burden and improve their net returns and savings. 

We understand that as a high-income-earner in Paramus, NJ, the complexities of tax planning can be daunting. Still, with the right advice, you can effectively navigate the intricate tax landscape, ensuring your wealth grows and is protected from the payment of unnecessary taxes.

This article will explore the following topics for high-income earners in Paramus, NJ:

  • Maximize Your Retirement Contributions
  • Consider Utilizing Muni-Bonds, Alternative Investments
  • Develop Charitable Donation Strategies
  • Understanding Tax-Loss Harvesting

Be sure to read our latest eBook: Investment Management vs. Wealth Management….Yes, There is a Difference! 

Why Maximize Your Retirement Contributions?

​​Maximizing retirement contributions is a top priority for high-net-worth individuals and high-income earners in Paramus, NJ, to minimize the taxes they pay each year.   This tactic has two purposes. One is to reduce taxable income, and the second is to create tax-deferred principal growth. 

Here are three ways to maximize your retirement contributions and reduce your taxable income.

  1. Increased Retirement Contributions: The more money you put into your retirement accounts, the less income tax you pay. Contributing to a 401(k) or an Individual Retirement Account (IRA) allows high-income earners to lower their taxable income.
  1. Catch-Up Contributions: If you are 50 or older, you can make additional “catch-up” contributions to your 401(k) or IRA, lowering your taxable income even further.
  1. Non-Qualified Deferred Compensation Plans (NQDC): Many companies offer NQDC plans to their higher-earning employees. These plans allow you to defer more of your income, reducing your taxable income.

Why Integra Wealth Management? Collaborating with an experienced wealth manager in Paramus, NJ, can provide personalized tax reduction and wealth preservation strategies. The team at Integra Wealth Management has over 30+ years of financial and tax planning experience.  Having experienced many different market cycles, we have the expertise and knowledge to help you navigate the complexities of maximizing your retirement asset while lowering your taxable income. 

Why Consider Utilizing Muni-Bonds and Other Alternative Investments?

Another strategy high-income earners use to reduce their taxable income is investing in municipal bonds and alternative investments. 

Municipal bonds are debt securities issued by states, local governments, and municipalities to finance capital expenditures. What makes them appealing, especially for high-income earners, is the tax advantage. The interest income from muni bonds is exempt from federal income tax and, in many cases, state and local taxes. These tax savings can be substantial in a high-tax state like New Jersey.

Investing in New Jersey municipal bonds can provide double or even triple tax exemption, based on the specifics of the bond. These tax benefits can improve effective yields compared to taxable investments, making them more attractive for high earners already facing significant tax payments. 

Alternative investing can also be an effective strategy for diversifying into new asset investments while minimizing taxable income. These include real estate, private equity, hedge funds, commodities, precious metals, etc. Some alternative investments, like real estate and energy partnerships, can generate tax deductions and credits that offset other types of income. 

It’s important to note that while muni bonds and alternative investments have potential tax benefits, they also come with their own investment risks. High-income earners should seek professional advice to understand these risks and their potential impact on achieving their financial goals. 

Why Integra Wealth Management? Our wealth management strategy is anchored in creating enduring partnerships with our clientele, enabling us to understand your ambitions, objectives, and concerns. Our wealth management professionals utilize their 30+ years of Wall Street experience and cutting-edge technology to build a true wealth management plan unique to your financial situation. 

Why Develop Charitable Donation Strategies?

Another tactic high-income earners in Paramus, New Jersey, use to reduce their taxable income is charitable donations supporting causes close to their hearts. 

For example, Donor-Advised Funds (DAF) are investment accounts specifically for philanthropists. Here’s how they typically work:

  1. Donation: The process begins when an individual or entity donates to a donor-advised fund. This contribution is typically cash but includes other assets such as stocks, real estate, or valuables.
  1. Tax Deduction: Upon donating to the DAF, the donor is immediately eligible for a tax deduction. This is a key benefit of DAFs because it allows the donor to receive an immediate tax benefit while deciding where the funds will go later.
  1. Investment Growth: Once the donation has been made, the funds are typically invested in an account managed by the sponsoring organization, a community foundation, a financial institution, or a charity. The aim is for the funds to grow over time, tax-free. The donor may have advisory privileges over how the funds are invested.
  1. Grant Recommendations: The donor recommends grants to qualified charities during the year. The sponsoring organization typically conducts due diligence to ensure that the organizations are eligible to receive the funds.
  1. Disbursement: Once the sponsoring organization approves the recommended grants, the funds are disbursed to the chosen charities. It’s important to note that while donors can recommend where the funds go, the final authority rests with the sponsoring organization.
  1. Anonymity: If the donor wishes, grants can be made anonymously. This is another benefit of DAFs, so donors can support causes they care about without publicizing their involvement.

Donating appreciated securities is another popular strategy; you donate stocks or mutual funds that have appreciated, thereby gaining a tax break on the full appreciated amount and avoiding any capital gains tax. 

Consider establishing a charitable remainder trust (CRT), which can provide a steady income stream while setting aside charity assets.

What about your heirs? If an appreciated asset is donated to charity, do the heirs lose a part of their inheritance? Not necessarily. The asset can be replaced in the estate with a survivorship insurance policy. The premiums are paid by the income produced by the donated asset.  

Why Integra Wealth Management? At Integra Wealth Management, we hold the values of absolute transparency and trust-building at the heart of every interaction with you. You can look forward to encountering a blend of sincerity, dependability, and professionalism throughout each phase of your financial journey with us.

Understanding Tax-Loss Harvesting

Tax harvesting, often called tax-loss harvesting, is a financial strategy to help high-income earners reduce their taxable income. This process involves selling off investments that have incurred unrealized losses to offset capital gains on appreciated investments, thereby reducing overall tax liabilities.

  1. Reducing taxable income: By realizing or “harvesting” losses, you can offset the gains realized from selling other appreciated investments, thereby reducing your overall taxable income. This can be especially beneficial for high-income earners in higher tax brackets.
  1. Carrying losses forward: If your capital losses exceed your capital gains in a given tax year, you may use the excess loss to offset up to $3,000 of other income. Any remaining losses can be carried forward into future years and deducted against future capital gains and income. This is beneficial because it allows high-income earners like you to continue reducing their taxable income over future periods.
  1. Rebalancing a portfolio: Tax-loss harvesting can be an opportunity to rebalance a portfolio to its original, targeted asset allocation. For example, you could sell off underperforming assets to realize a loss and reinvest the proceeds in assets more aligned with your stated investment strategy.
  1. Improving after-tax returns: You can increase your after-tax returns by effectively harvesting tax losses. Over time, the tax savings can compound and improve your investment portfolio’s returns.
  1. Flexibility: Tax-loss harvesting can provide flexibility in an investor’s tax planning. It can be implemented at any time during the year and can be used to offset both short-term and long-term capital gains, which are taxed at different rates.
  1. Understanding “wash sale” regulations are crucial. These rules disallow you from declaring a loss when you sell a security if you purchase a security that is “virtually the same” within a 30-day window either preceding or following the sale.

Why Integra Wealth Management? Tax-loss harvesting should be used judiciously, as it involves selling off assets that might otherwise be expected to perform well. The strategy should be based on a sound understanding of the tax implications and be aligned with your financial and investment objectives. Our mission is to assist you in achieving financial stability and autonomy. Our steadfast dedication to outstanding service ensures that every client is treated with the utmost value and respect.
Suppose you are a high-income earner in Paramus, NJ, looking for assistance in reducing your taxes. In that case, we welcome the opportunity to explain our true wealth management approach in an introductory meeting.

Richard Dragotta

More about the author: Richard Dragotta

Founder, Wealth Advisor - Rich is an esteemed 30+ year leader in the wealth management industry. His skill set includes all areas of wealth management execution, from practice development and compliance to operations, service delivery, workflow efficiency, marketing strategies, technology innovation, and human resources.

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