By Missy Devlin, CFP®
Tax planning, including identifying available tax breaks, is an integral part of wealth management. However, many high-net-worth (HNW) individuals and families don’t look for tax breaks because they assume they won’t qualify. Over time, these families may end up paying thousands more in taxes than they need to.
When we work with HNW clients, we can help them identify tax breaks they weren’t aware of and formulate a tailored tax plan. These often-overlooked breaks could potentially save you money on your taxes next year.
Pennsylvania 529 Plans
If you’re saving for your children’s college, you may already have a PA 529 plan (or more than one). These plans allow for tax-free growth and help you make the most of your college savings. But did you know your contributions may be tax-deductible?
Each state sets its own rules for 529 plan contribution deductions, and Pennsylvania is among the most generous. If you’re a Pennsylvania taxpayer, you can deduct up to $19,000 ($38,000 if married filing jointly) in PA 529 contributions from your state taxable income.
Educational Improvement Tax Credit (EITC) or Opportunity Scholarship Tax Credit (OSTC)
If you have a business and are charitably inclined, you may be able to claim the Educational Improvement Tax Credit (EITC) or Opportunity Scholarship Tax Credit (OSTC). The EITC awards Pennsylvania tax credits to businesses that contribute to any of the following:
- Educational improvement organizations
- Scholarship organizations
- Pre-kindergarten scholarship organizations
The OSTC awards Pennsylvania tax credits to businesses that contribute to an Opportunity Scholarship Organization. These organizations help qualified students at underperforming public schools attend higher-ranked public schools or private schools.
Not all businesses qualify for these tax breaks. However, if strategic charitable giving is part of your overall financial plan, it may be worth exploring the EITC, OSTC, or both.
Investing in Pennsylvania Municipal Bonds
Investing in Pennsylvania municipal bonds offers unique tax breaks for Pennsylvania residents. When you invest in these bonds as a state resident, you can enjoy a relatively uncommon triple tax advantage:
- PA municipal bonds are exempt from federal income tax.
- PA residents are exempt from paying state income tax on interest earned from municipal bonds.
- Most PA localities do not tax interest from municipal bond interest.
Pennsylvania municipal bonds can have a meaningful role as part of a well-balanced portfolio. If you want to generate investment income while avoiding federal, state, and local taxes, PA municipal bonds are worth a look.
Gifting to Avoid Pennsylvania Inheritance Tax
Not all states have a state-level inheritance tax, but Pennsylvania does. The rate depends on who is receiving the inheritance:
- Spouses: 0%
- Children: 4.5%
- Siblings: 12%
- All Others: 15%
When it comes to inheritance tax, finding tax breaks can be difficult. However, reducing your estate may lessen the tax burden your heirs face. You can gift up to the federal gift tax exclusion; that’s $19,000 for individuals or $38,000 for married couples filing jointly.
Make Tax Breaks Work for You
Most of our HNW clients at Thrive Wealth Management, LLC, have complex financial situations. And all too often, complex financial situations lead to complex tax situations. Finding tax breaks your family previously missed is one way to lessen the burden you feel when tax season comes around.
Our team is dedicated to providing the authentic, personalized financial guidance our clients deserve. Whether you’re looking to navigate a complicated tax landscape or are hoping to put together a comprehensive life plan, we’re here for you. Contact us with any questions you may have.
Ready to schedule? Call (215) 376-5530 or email Missy@thrivewealth.com.
About Missy
Missy Devlin, CFP®, is a Financial Planner at Thrive Wealth Management, LLC, a boutique financial planning firm in Audubon, Pennsylvania. She has dedicated her career to helping individuals and families make confident, strategic financial decisions. Missy is dedicated to always putting her clients’ interests first and genuinely cares about their outcomes. “We’re human and it’s all too easy to make emotional decisions about your hard-earned money,” Missy says; she finds it most rewarding when clients stay disciplined during challenging markets and ultimately see their plans succeed.
After earning her degree from the Robert H. Smith School of Business at the University of Maryland, Missy’s career started at SEI Investments, where she served as Director of NextGen Services. Her insights have been featured in publications such as NASDAQ, FA Magazine, Fox Business, Iris, and Michael Kitces’ Nerd’s Eye View. What drives Missy every day is her family (her husband and three children) and her passion for helping clients live fulfilling lives. Outside of work, she enjoys traveling, staying active, and supporting Ryan’s Case for Smiles, a nonprofit she has championed for more than a decade, where she now serves as an Emeritus Board Member. To learn more about Missy, connect with her on LinkedIn.
Disclosure:
The material set forth herein is provided for informational and educational purposes only. It should not be construed as tailored or individualized advice, is not a full analysis of the topics presented, and is based on data and legal and regulatory standards as of the date of publication. Readers should discuss the topics addressed herein with the qualified professional(s) of the reader’s choosing.
Thrive Wealth Management, LLC (“Thrive”) is an investment adviser registered with the United States Securities and Exchange Commission. Registration does not imply a certain level of skill or training. Thrive is not a law firm or accounting firm and the content herein should not be construed as legal or accounting advice.
Not all services will be necessary or appropriate for all clients. Certain tax strategies may not be appropriate for all investors. Readers should review these options, as applied to their individual circumstances, with their engaged professional(s). The potential value and benefit of Thrive’s services will vary based upon the client’s individual investment, financial, and tax circumstances. The effectiveness and potential success of a tax planning strategy depends on a variety of factors, including but not limited to the manner and timing of implementation, coordination with the client and the client’s other engaged professionals, tax benefit eligibility and limitations, income level, tax bracket, and market conditions.
Past performance does not guarantee future results. All financial planning and investment strategies have the potential for profit or loss, and different financial planning strategies, investments, and types of investments involve varying degrees of risk. There can be no assurance that the future performance of any specific financial plan, investment, or investment strategy, including those recommended by Thrive, will be profitable or equal any historical performance level.
