Mid-Year Tax Planning: Creating Opportunities Before Year-End

A few years ago, we worked with a client who was surprised to learn that a portion of his Social Security benefits became taxable at the state level. The issue wasn't a major mistake or an unusual transaction. In fact, his income simply ended up slightly above New Mexico's income threshold for exempting Social Security benefits from state taxation.

Looking back, the frustrating part wasn't the tax bill itself—it was knowing that with a little more planning earlier in the year, we likely could have reduced his adjusted gross income enough to remain below the threshold. The opportunity wasn't lost because of a lack of options. It was lost because there wasn't enough time left on the clock.

That's one reason we encourage clients to think about tax planning long before year-end.

Many people view tax planning as something that happens in March or April while preparing a return. In reality, some of the most valuable planning opportunities occur in the middle of the year, when there is still time to make adjustments and take advantage of available strategies.

As Proverbs 21:5 reminds us, "The plans of the diligent lead surely to abundance, but everyone who is hasty comes only to poverty." While this verse isn't specifically about taxes, it highlights an important principle of stewardship: wisdom is often proactive rather than reactive.

Start with Your Income Trajectory

Mid-year is an ideal time to compare your current income picture with prior years and with the projections established at the beginning of the year.

Have there been changes in employment income, business revenue, retirement distributions, investment gains, or other sources of income? If so, it may be worthwhile to revisit estimated tax payments and withholding strategies before the year progresses further.

Small adjustments made in June or July can often be easier and more effective than trying to solve a tax issue in December.

Evaluate Roth Conversion Opportunities

For many retirees and pre-retirees, the middle of the year provides a useful checkpoint for evaluating potential Roth conversion opportunities.

Because tax brackets are based on annual income, having a clearer picture of year-to-date earnings can help determine whether there is room to convert a portion of traditional retirement assets without creating unintended tax consequences. If you lack confidence regarding your full year’s income, consider revisiting the strategy with your tax advisor in November to make your final calculations. 

A Roth conversion is not appropriate for everyone, but evaluating the opportunity before year-end can provide greater flexibility and more informed decision-making.

Review Tax-Loss Harvesting Opportunities

Market fluctuations can create opportunities to offset realized capital gains through tax-loss harvesting.

While many investors think of tax-loss harvesting as a year-end exercise, monitoring taxable accounts throughout the year may uncover opportunities that could otherwise be missed.

As always, tax considerations should be evaluated alongside overall investment objectives rather than driving decisions on their own.

Revisit Charitable Giving Goals

Many families enter the year with charitable intentions but don't revisit those plans until the holidays.

Mid-year provides an opportunity to evaluate giving goals and determine whether certain strategies may enhance both charitable impact and tax efficiency. Depending on individual circumstances, options could include donating appreciated securities, utilizing a donor-advised fund, or coordinating giving with other income events during the year.

For some families, a "bunching" strategy may also be worth considering. By combining multiple years of planned charitable contributions into a single tax year, taxpayers may be able to exceed the standard deduction threshold and receive greater tax benefit from their giving while maintaining their long-term charitable commitments.

When charitable giving is aligned with both personal values and thoughtful planning, families are often able to be more intentional in their generosity.

Plan Ahead for Required Distributions

Retirees who are subject to Required Minimum Distributions (RMDs) often wait until late in the year to satisfy those obligations.

However, understanding how distributions may affect taxable income, Medicare premiums, Social Security taxation, and other planning considerations can be valuable well before December arrives.

For charitably inclined retirees, a Qualified Charitable Distribution (QCD) may also be worth evaluating. A QCD allows eligible individuals to direct a portion of their RMD to a qualified charity, potentially satisfying all or part of their required distribution while excluding that amount from taxable income.

The earlier these conversations occur, the more options may be available.

Consider Family Gifting Opportunities

Mid-year is also a good time to revisit family gifting strategies.

Whether helping children, supporting grandchildren, funding education goals, or transferring wealth as part of a broader estate plan, gifting decisions often have both tax and family implications.

Addressing these conversations proactively allows families to make decisions intentionally rather than rushing through them near year-end.

Don't Overlook State Tax Planning

Federal taxes tend to receive most of the attention, but state tax rules can have a meaningful impact on overall outcomes.

As our earlier example illustrates, crossing an income threshold by even a modest amount can sometimes trigger unexpected tax consequences. In New Mexico, Social Security benefits may remain exempt from state income tax for many retirees, but exceeding certain adjusted gross income thresholds can cause that exemption to disappear. Careful planning throughout the year may help avoid unintended outcomes.

Arizona provides another example of how state-specific rules can create planning opportunities. Arizona taxpayers may be eligible for dollar-for-dollar state tax credits through contributions to qualifying charitable organizations and scholarship programs. Understanding how these credits fit within an overall charitable and tax strategy can create meaningful benefits for both families and the organizations they support.

Reviewing state-specific rules and opportunities while there is still time to act can help reduce surprises when tax season arrives.

The Value of Acting Before Deadlines Arrive

One of the advantages of mid-year planning is timing.

We're now comfortably past the April filing deadline and still months away from year-end. For many families, this creates an ideal window to coordinate conversations between their financial advisor and tax professional before deadlines become urgent.

Good planning doesn't eliminate taxes, nor should it. But thoughtful planning can help ensure that opportunities are evaluated, decisions are made intentionally, and avoidable regrets are minimized.

If you haven't reviewed your tax situation recently, now may be an excellent time to schedule a planning conversation. A mid-year review can help identify opportunities, address potential concerns, and ensure that your financial decisions align with both your goals and your values.

At John Moore Associates, we believe faithful stewardship involves being intentional with the resources God has entrusted to us. Mid-year planning is one practical way to put that principle into action.

Disclosure: This material is provided for informational and educational purposes only and should not be construed as tax, legal, or investment advice. Tax laws and regulations are subject to change, and individual circumstances vary. Readers should consult with their tax advisor, attorney, or other qualified professionals regarding their specific situation before implementing any strategy discussed. John Moore Associates does not provide tax or legal advice.