Many Americans can’t wait for tax season to be over. They get to April 15, heave a sigh of relief, and leave tax considerations behind until they’re unavoidable. However, there are several compelling reasons why year-round tax planning is practical and sensible.
In this post, I explain the various benefits of year-round tax planning and offer some tips for carrying it out.
Benefits of Year-Round Tax Planning
Spreading out tax planning over the year can be advantageous in many ways, including the following:
Facing Less Pressure
Tax-season pressure in March and April can be unnerving and stressful. Taking on smaller tax tasks throughout the year can lessen that burden.
Meeting Deadlines
Staying on top of your taxes can help you meet year-end deadlines. When you’re always considering your tax implications, there’s less chance you’ll overlook them.
Maximizing Contribution Limits
If you track income and deductions regularly, you are better prepared to max out contributions to your retirement fund. You may find opportunities for making catch-up contributions.
Maximizing Deduction Plans
With year-round tax planning, you’re more likely to find and make use of deductions that can lower your taxable income.
Strategies for Year-Round Tax Planning
Regular tax planning doesn’t have to be a momentous, all-consuming task. Here are a few ways to manage your taxes and build positive financial habits in the process.
Making Use of Tax-Advantaged Accounts
Many tax-advantaged savings vehicles can help you save on your taxes, both now and in the future. They include traditional and Roth IRAs, health savings accounts (HSAs), and 401(k)/403(b) retirement accounts. Managing taxes year-round makes setting aside regular contributions and lowering taxable income more feasible.
Deferring Income
Dedicating a portion of your income to retirement or “deferred compensation” packages means a tax deduction today and more savings in the future. This is especially helpful if your employer matches your contributions to a 401(k) plan, for example.
Boosting Income
At certain times (like during early retirement, job transitions, or layoffs), you may experience an income shortfall. But this can provide an opportunity if you’re current on your taxes. You might convert a traditional IRA to an after-tax Roth IRA while you’re in that tax bracket for substantial, tax-free growth.
Implementing Additional Strategies
Year-round tax planning also gives you the chance to optimize taxes in a few more ways, such as:
Managing and staying compliant with taxable required minimum distributions (RMDs)
Using tax-loss harvesting to offset capital gains (just be mindful of the wash-sale rule)
Bunching business and medical expenses and deductions into a single year
A qualified tax advisor can help you identify other opportunities that year-round tax planning might open up.
Tips for Year-Round Tax Planning
Here are a few helpful tips for managing your taxes year-round.
Maintain Comprehensive Records
Organize your pay stubs, receipts, and financial statements, keeping them in an accessible place (i.e., not a shoebox, dusty attic, or kitchen drawer). Apps are especially helpful in this regard.
Keep Your Business Receipts for Potential Deductions
Track your out-of-pocket business expenses for mileage, charitable donations, education, and other costs. You might be able to deduct these expenses, and year-round tax planning can make it easier to do so. Again, technology is your friend.
Review Your Tax Withholding
W-2 employees should check their tax withholdings after every tax season to confirm they’re aligned with projected taxes. If you’re self-employed, pay estimated taxes every quarter to avoid penalties.
Get Your Documents in Order Ahead of Time
You may require W-2 forms, 1099 income statements, 1099R distribution forms, and 1095-A medical insurance to file your taxes. Get them well in advance of tax season to avoid last-minute scrambles.
Let’s Grow the Financial Future You Deserve
At Prosperity Financial Solutions, LLC, we take a holistic approach to your financial life. When you reach out, I can help you plant the seeds of a strong, tax-smart strategy and cultivate your wealth for years to come.
Ready to get started? Let’s talk about how year-round tax planning can support your long-term goals. Call (561) 207-6213, email ramsden@brookstoneadvisor.com, or book a 30-minute complimentary call online.
About David
David Wilcox is president and cofounder of Prosperity Financial Solutions, a financial services firm, based in Palm Beach Gardens, FL, specializing in retirement planning, estate planning, and investments. Since 1987, David has been assisting pre-retirees, retirees, and investors with comprehensive retirement planning, helping them preserve their wealth, increase their retirement income, and avoid common financial mistakes. Prioritizing financial education, he employs strategies to instill confidence and comfort in his clients as they make decisions and move toward their ideal financial future. He also highly values building relationships with clients and strives to make them feel like part of his family.
David holds an associate’s degree from Broward College, a bachelor’s degree from Florida State University, as well as the Life Underwriter Training Council Fellow (LUTCF®) and Long-Term Care (CLTC®) certifications. A firm believer in professional education and participation, he is a member of the Global Financial Association, a member of NAIFA (National Association of Insurance and Financial Advisors), and is a Certified National Long-Term Care instructor. Teaching and mentoring other financial advisors, David presents dozens of seminars and workshops on long-term care and investment planning throughout the country. Outside of the office, family man David enjoys golfing, fitness, and spending time with his kids on the boat, going for long walks, and traveling to new places. He wants to provide a positive example for his children and show them that it’s never too late to follow your dreams. To learn more about David, connect with him on LinkedIn.
Investment advisory services offered through Brookstone Capital Management, LLC (BCM). a registered investment advisor. BCM and Prosperity Financial Solutions are independent of each other. Insurance products and services are not offered through BCM but are offered and sold through individually licensed and appointed agents.