There are certain tax planning moves that are most prudent to consider while your income puts you in the highest tax bracket. For many medical professionals, while you’re working, you have more income and remain in a higher bracket than will be true immediately after you retire. In that situation, it’s generally advisable to focus on maximizing deductions and considering deferring income into future years when you may be earning less and land in a lower tax bracket. Here are a few options to consider:

While changes to tax laws over the last several years have reduced the types of expenses that can be deducted, charitable giving remains a permissible deduction. If you itemize your deductions, your contributions to charity will help to decrease your tax liability. However, what and how you give can provide varying levels of benefit to you.

For example, you can give cash. However, for someone who has appreciated investments, many charities will accept those in lieu of cash. By an appreciated investment, I mean that stock or perhaps a mutual fund or other investment that you paid $10 a share for many years ago, that’s now worth $100 a share or more. By giving that appreciated investment to charity, you get the same tax deduction as you would if you gave cash, but you also benefit from assisting the charitable organization while avoiding realizing the capital gain and associated tax liability that you would’ve incurred if you sold the investment.

Several years ago, when the government eliminated certain deductible items, they also increased the amount of the standard deduction. So many people no longer itemize their deductions, but rather take that standard deduction. For people who would ordinarily take the standard deduction, there’s a special type of account called the donor advised fund, or “DAF” for short, that can be beneficial when it comes to realizing the tax benefit from your charitable giving. With this type of account, you can make an irrevocable contribution to the DAF, meaning once you make that contribution, you’re not going to be able to get the money back again. But you receive a deduction in the year in which you make that lump-sum contribution.

Then you can make grants from the DAF to the charities of your choice over time; you’re not required to make those grants in the year in which you take the deduction. By allowing you to stagger the pace at which you send the funds to the charity, you can devise a strategy in which you contribute an amount to the DAF in a particular year that’s large enough so that you qualify to itemize your deductions, but then still give to the charities according to your preferred timeline.

And for someone who’s over 70 and a half years old, you can consider making a qualified charitable distribution, known as a “QCD.” With a QCD, you can give directly from a tax-deferred account, like a traditional IRA, to a charity. For 2024, the maximum amount that you can give to a charity in this way is $105,000. When the funds are sent directly to the charity from your retirement account, it’s not considered a taxable distribution to you. In addition, if you’re of an age after which you’re required to start taking distribution from the IRA account, the amount of the QCD will count toward that required minimum distribution, or “RMD,” as well.

In addition to charitable giving, another good way to maximize your deductions is by contributing to a tax-deferred retirement account. Different types of accounts have different contribution limits. However, for your reference, in 2024, someone over the age of 50 can contribute up to $30,500 of their earned income to a 401(k) or a 403(b) account.

Just as there are strategies to consider while your income is high, there are also different approaches for when it’s lower. You probably know you can defer Social Security until you’re 70 and you can postpone taking distributions from your IRA or other retirement account until you’re 73 or 75, depending on your birthdate. If you have adequate savings to cover your cash-flow needs during the time between your retirement and when other sources of income are initiated, you may have several years during which you have relatively little taxable income. As a a result, you could consider realizing income to take advantage of that low tax rate.

Estate Tax Planning Ideas

Estate tax planning is a very important, yet complicated, topic for high-net-worth individuals. Complicating estate tax planning even further is the fact that the federal government and the individual states each have their own rules when it comes to taxation of your estate after your death.

Currently, the applicable exclusion for federal estate taxes is about $13.5 million per person. For each state, the tax assessed above that amount varies. In New York, for example, it’s currently about $7 million per person. If your assets even modestly exceed these limits, particularly the New York limit, your estate may be required to pay a meaningful tax bill to either the federal government or your state.

These thresholds and laws are legislatively determined and they can change over time. So, for example, if no changes are enacted, the federal estate tax exemption is scheduled by law to be cut in half in 2026. We work with our clients and their estate attorneys to ensure that they have a plan in place that meets their needs while they’re alive that also optimizes the way in which the assets pass to their heirs in the future.

An estate plan can include several different features, but often, trust planning and gifting can be part of that solution. There are many different types of trusts that can accomplish varying goals. Simply put, I’m referring to a trust that includes provisions as to how your assets should be distributed. Certain types of trusts also can provide benefits in the calculation of the size of your estate for tax purposes.

When it comes to estate planning, you don’t need to wait till the very end. Gifting during your life can really be a very important and powerful tool in your estate planning. In 2024, an individual can give up to $18,000 to another individual without any tax reporting consequences. Combined, a married couple would be able to give $36,000 to any other individual. Gifting in this way is really a preemptive form of estate planning that, over time, may provide a tax benefit, but it also enables you to see the impact of your generosity on your heirs during your lifetime.

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Investment advisory services provided by Altfest Personal Wealth Management (“APWM”). All written content on this site is for information purposes only. Opinions expressed herein are solely those of APWM, unless otherwise specifically cited. Material presented is believed to be from reliable sources and no representations are made by our firm as to another parties’ informational accuracy or completeness. All information or ideas provided should be discussed in detail with an advisor, accountant or legal counsel prior to implementation. All investing involves risk, including the potential for loss of principal. There is no guarantee that any investment plan or strategy will be successful.