What is income allocation and why is it important?

What is income allocation?

Income allocation is what sources of income are reflected on each year’s tax returns.  These sources are different based upon your set of circumstances, but could be, but not limited to, Wages, Pensions, Social Security Benefits, Retirement Plan distributions, Taxable Savings, Dividends, Capital Gains, distributions from properties or companies; the list goes on.

Why is income allocation important?

By planning what distributions come from what sources, it may help mitigate your annual income tax burden, as well as, help give you perspective on where the sources of your income will be coming from for years to come.