Regardless of whether your investment objective is growth or capital preservation, maximizing your after-tax return should be a primary goal. One of the best ways to increase after-tax returns is to implement tax bracket management. This is a strategy utilized to reduce taxes in high-income years by possibly realizing additional income in lower income years if you expect to receive higher income in future years.
With tax bracket management, you usually aren’t eliminating income, but simply deferring income into another period. So it’s crucial that you consider when and how the realization of the deferred income will be taxed. If done poorly, short-term decisions may actually result in higher taxes at a later date. Therefore, we believe it is important to work with your CPA or tax advisor to develop a long-term plan that optimizes your cash flow while minimizing your tax liability.