Sunday, May 19, 2024

Money Sense: Four times you should always ask, ‘How will this affect my taxes?’

Considering the tax implications of key financial moves could save you money. Here is what Merrill suggests you know.

We make big financial decisions all the time. But we don’t always ask ourselves: How will this affect my taxes? Here are five times when remembering to consider the tax consequences — and possibly adjusting your strategy — could make a difference.


Did you know that you could take advantage of a capital gains tax exclusion on the first $250,000 of profit — $500,000 if you are married and file jointly — when selling your primary residence?  You and your spouse, if you are married, must have lived in the house for at least two of the past five years. With the maximum capital gains tax rate currently at 20%, that exclusion could save you $100,000 or more. (The exclusion can only be used once within the prior two years.) 

A move to consider: Staying until the two-year threshold has been met, as the capital gains exclusion applies only to your primary residence.

Don’t forget: You can add the cost of home improvements you make before you sell to the cost basis of the home. The higher the basis, the smaller your gain — and the less you would have to pay taxes on.


See if your employer offers a high-deductible health plan that qualifies you to make contributions to a qualifying health savings account. When you enroll in a high-deductible health plan, you may be able to contribute to a health savings account (HSA). Your contributions to an HSA are tax-deductible, or may be made by pre-tax salary deductions if allowed by your employer.  Earnings and withdrawals for qualified medical expenses are federal income tax-free.

A move to consider: If your HSA allows you to invest the money you contribute, its potential tax-free growth could help you pay for healthcare costs as you age and even cover the cost of Medicare premiums.

Don’t forget: Money contributed to an employer-sponsored health flexible spending account (FSA) for health care expenses offers another way to lower your federal taxable income. Participating in certain types of FSAs may have an impact on your eligibility for HSA contributions.


In most cases, there are tax consequences when you sell investments to realize gains. But not all investments are taxed at the same rate, says tax accountant Vinay Navani of WilkinGuttenplan.

Bond interest and dividends from real estate investment trusts (REITs) are generally taxed as ordinary income, at rates currently as high as 37% (with a proposal before Congress to raise the top rate to 39.6% for 2022 for high-earners). Qualified dividends and gains from the sale of investments owned for more than a year may be eligible for long-term capital gains rates, which currently are capped at 20% for most taxpayers, plus an additional 3.8% net investment income tax.

A move to consider:  In general it is better to have non-income producing investments, such as growth stocks, in your taxable accounts, and investments that generate income, such as corporate bonds, in tax-deferred accounts.

Do not forget: It is possible to offset capital gains by selling investments that have dropped in value. You can generally deduct up to $3,000 (or $1,500 if married and filing separately) of capital losses in excess of capital gains per year from your ordinary income.


With a traditional 401(k) plan, your contributions are made on a pretax basis, giving you immediate savings by reducing your federal taxable income. In addition, investment income in your account is not subject to federal taxes until money is taken out at retirement, when it is taxed as federal ordinary income. With a Roth 401(k), contributions are made with after-tax income, but then qualified withdrawals starting at age 59½ are potentially federal tax-free.

A move to consider: Splitting your contributions, saving enough in a traditional 401(k) plan to limit your taxable income and keep from rising into a higher tax bracket, then putting the rest in a Roth 401(k).

Don’t forget: Be sure to contribute enough to your regular 401(k) to earn the maximum matching contribution from your employer. Because companies can only allocate matching contributions to a pre-tax account in your 401(k) plan, that means at least part of your money will be contributed on a pre-tax basis. Your employer can match your 401(k) contribution and place the matching contribution in a pre-tax account in your 401(k) plan, but cannot place the matching contribution into your Roth 401(k) account.

This is just a sampling of the kinds of situations where you might benefit from being more tax-aware, notes Navani. “Remember, too, that tax laws change frequently, and anticipating future shifts in tax rates and rules could help to influence the financial decisions you make today.”

For more information, contact Merrill Lynch Financial Advisor Jeffery D. Price of Price & Associates office at [email protected] or (817)-410-4940.

CTG Staff
CTG Staff
The Cross Timbers Gazette News Department

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