A lot of people start thinking about taxes in December.
They look at their income for the year, start thinking about deductions, make a few last-minute purchases, increase a retirement contribution, and hope there is something they can do before December 31.
The problem is that by December, many tax-planning opportunities are already limited.
Tax planning happens throughout the year — not just in December and not after the year is over.
Why does timing matter?
Many tax decisions need to happen before December 31 to affect that year’s tax return.
Depending on your situation, there may be opportunities involving:
- Retirement contributions
- Estimated tax payments
- Business expenses and equipment purchases
- S corporation compensation
- Roth conversions
- Capital gains and losses
- Charitable contributions
- Health savings account contributions
- Business retirement plans
- Tax withholding
Some decisions take time to evaluate, and others have deadlines well before the end of the year.
Waiting until tax season can turn a tax-planning opportunity into simply a tax-preparation exercise.
Tax planning is more than finding deductions
Tax planning isn’t just about finding deductions or buying something for your business before December 31.
Sometimes the better strategy is deciding when to recognize income, how much to contribute to retirement accounts, whether to make a Roth conversion, or how a business decision could affect your taxes in future years.
For retirees, this can become even more important. Decisions involving retirement account withdrawals, Roth conversions, Social Security, and required minimum distributions can affect not only federal income taxes, but potentially Medicare IRMAA premiums and other tax thresholds.
Those decisions are much easier to evaluate when you have time.
What does year-round tax planning look like?
For individuals, that may mean reviewing projected income, retirement contributions, investment activity, and other major changes during the year.
For business owners, it may mean looking at profitability, estimated taxes, payroll, equipment purchases, retirement plans, and the overall tax impact of business decisions before the year is over.
You don’t necessarily need a complicated tax strategy. Sometimes a periodic conversation and a look at the numbers is enough to identify an opportunity — or prevent an unpleasant surprise.
Don’t wait until the tax return is finished
Tax preparation tells you what happened.
Tax planning helps you make decisions before it happens.
That is why I encourage clients to think about taxes throughout the year. A mid-year review can give you months to make adjustments. A September or October review can help identify opportunities before year-end. And even after December 31, reviewing the previous year can help build a better plan for the next one.
The goal isn’t simply to prepare your tax return and tell you what you owe.
It’s to help you understand the numbers, plan ahead, and make informed tax decisions throughout the year.
If your tax situation has changed — whether you’ve started a business, changed jobs, retired, purchased property, received a large investment gain, or simply feel like you’re paying more in taxes than you should — it may be worth having a conversation before tax season.
LaVieri CPA & Tax Advisory 