Tax-Planning Tips for the Year Ahead

Now that Tax Day has come and gone, you may be eager to avoid thinking about the topic for a while. If you faced any unexpected tax bills or a lower refund than you anticipated, you may still be reeling from the surprise. But as tempting as it may be to put off tax planning for the future, being proactive today is the best way to minimize stress and uncertainty in the coming year.

While your most recent tax filing is still fresh in your mind, we recommend taking the time to schedule a debrief with your CPA. People don’t often think to meet with their CPA outside of tax season, but the spring and summer are a great time to schedule this sit-down as it’s their quietest time of year. This meeting is an opportunity to review last year’s taxes as historians, reviewing them to see what you can learn and apply to your financial strategy this year.

An hour with your CPA can save you hundreds, or more, on next year’s taxes. It can also provide a foundation for a proactive financial strategy.

Below, we’ll touch on a few tips and strategies you may wish to discuss with your CPA. The best tax strategy for your needs will vary depending on your circumstances, so you’ll want to discuss your unique situation with both your CPA and financial planner to come up with the best strategy for this year.

Understand Key Financial Thresholds and Break Points

Break points are specific thresholds or limits associated with deductions, credits, retirement plan contributions, Medicare premiums, and so forth. In some cases, exceeding a threshold by even $1 can cost thousands in taxes. Being aware of thresholds you’ve crossed last year will help you avoid the same problem in the upcoming year.

There may also be opportunities to maximize your deductions in areas you didn’t fully utilize last year. If you’re not brushing up against your thresholds, you may be leaving money on the table. Your CPA can help you identify these opportunities and help you adjust or prepare for next year’s filing.

Look for Wise Opportunities to Decrease Taxable Income

One of the primary ways to minimize your tax bill is to reduce taxable income. If last year’s taxes were higher than you anticipated, now may be the time to look at opportunities for reducing your income this year.

For example, you might choose to put more money aside into a health savings account (HSA), increase your charitable donations, or review your retirement account contributions. Your CPA can also help you identify which deductions you can take advantage of in order to maximize your tax savings.

Consider Whether You’re a Good Candidate for Increasing Income

Federal tax rates are currently low, but they won’t stay that way forever. The Tax Cuts and Jobs Act is expected to sunset in 2026. It’s too early to say for certain what future administrations may do, but it’s wise to plan for a tax increase within the next few years. Your financial circumstances could also be poised to change in the future due to selling a business, a pension plan going into effect, Social Security payments starting, and other new income streams that could affect your total tax liability in coming years.

You may want to plan around that eventual tax increase by strategically increasing your income now, such as through a Roth IRA conversion. Being proactive about this allows you to make a plan for spacing out your income rather than potentially being hit with a huge tax bill.

Taxes Are Symptomatic of God’s Provision

“Render therefore unto Caesar the things which are Caesar's; and unto God the things that are God's.” -- Matthew 22:21

Paying taxes is rarely fun. But it’s also a good problem to have. After all, people only pay taxes when they receive something good. The more you receive, the greater the share you’ll need to pay.

If we believe that our wealth is, ultimately, provided by God, then taxes are a sign that God has provided more to us. They are a sign of abundance and provision. Framed in that way, tax season stops being a time of resentment and becomes instead a moment of contentment, gratitude, and contemplation.

That said, there is no point in over-paying for your taxes. As our founder, John Moore, is fond of saying, “Pay every dime that you owe, and not a penny more.” A wise financial strategy worked out with your CPA and financial planner  can put you in the best position to balance your blessings and what you owe against your long-term financial goals.

Reach out to one of our financial advisors in Albuquerque or Scottsdale with any questions. We’ll be happy to set up a meeting with you and your accountant to discuss tax strategies and financial plans that will put you in the best place for the new year.

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