Ian and Sam, twin brothers, started their business after their employment was terminated as employees, but retained as “contractors”. The brothers are optimistic and rightfully so. After one year in business, they have some cash saved up. What shall they do with the money on hand?

Starting out is exciting! You get to put your vision into action. You have done your research and consulted with your CPA, setting up a suitable business entity and you are ready to rock and roll.

As a financial advisor, I would be delighted to assist you with tax saving strategies when it comes to investments and retirement savings accounts / programs.

But without knowing whether my clients are married or single, or even divorced with a child support obligation; whether they want to use the savings in a few years for business expansion or save for retirement. Would it be in my clients’ best interests to ask what is the best strategy for making their savings grow? Would I be living up to my professional standard to advise my clients without knowing more of their background and plans for their business and personal life?

One response might be “make as much money as possible regardless”. Respectfully, I beg to differ. We must look at the “after tax” rate of returns. In addition, how could we compare the “results”, if we do not know the number of years we are investing over?

Further, some investments enjoy tax deferred growth (like retirement accounts) while others don’t (like regular checking accounts).

The most logical way for me to conduct “business” is to sit down with you and to understand your life goals (in addition to your business pursuit), to get a sense of your risk tolerance (are you able to sleep through the night when the market is down 20% for example), and time frames for each goal. Then we could come up with a personalized plan with strategies you are comfortable with. Finally, we will select which stocks, mutual funds, etc. to invest in after all the “pre-requisite” items discussed above are met.

Where do “tax saving” opportunities come in?

  • Tax loss harvesting is usually best executed in the last quarter: we will review each investment holding and sell those who are in the red. This way, you will have a “capital loss” to offset your income while filing your income tax returns the following year

  • While selecting mutual funds to invest in, some fund do stipulate that “tax manage” or “tax efficient” is one of their investment objectives, then those are the funds that we could focus on and consider to invest in.

  • Donate highly appreciated investments to the charity of your choosing. When you donate the investments, the donated amounts are determined by the market value of the donated investments and as a result, you need not sell them, pay taxes on the capital gain, and use the sales proceeds for the donation.

    These are common and general ideas. Personalized recommendations will have to be based on your goals, plans, investment time horizon, perception and tolerance of investment risks, etc. to make proper recommendations.

    Also, even if your new business venture is not ready to set up a company sponsored retirement plan for all, I would still help you set up an Individual Retirement Account (IRA) to bring down the taxable income on your personal income tax return and at the same time build up tax deferred growth for your retirement goal.

    Even though the strategy and program discussed above might not seem material since the IRA contribution limit usually is not high compared to other types of retirement plans such as 401k accounts. Nonetheless, if you give it time for the compounding effect, it will surprise you when your reach retirement age. Let’s do a quick calculation, if you invest $6,000 in 2020 and earn an average return of 10% annually for 20 years, the balance in 2040 will be around $40,365.

    Building up wealth takes time. The secret is: be in the market, invest consistently, review and adjust periodically; patience and discipline do pay off statistically speaking (although there is no guarantee).

    I am here to help – an initial free consultation is offered to all new clients. You could ask your questions and we could both decide whether we are able to work successfully together.  For your convenience, here is a link to access my appointment calendar, https://square.site/book/9AXE057BXPYYG/annie-hung-scanga.

Princeton Forrestal Village
116 Village Blvd, Suite 200
Princeton, NEW JERSEY 08540
Phone: (609) 910-2600


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