Benjamin Franklin famously said, “In this world, nothing can be said to be certain, except death and taxes.” While we can't avoid taxes entirely, proactive tax planning can significantly impact our overall financial health. Here are ten essential tax planning steps to consider throughout the year:
· Organize and Track Deductions: Maintain detailed records of deductible expenses such as medical costs, charitable contributions, and business-related expenses. This diligence streamlines the deduction process during tax season.
· Regularly Review Your Withholding/Estimated Tax Payments: Periodically assess and adjust your withholding to ensure you're neither overpaying nor underpaying taxes. Major life changes, like marriage, childbirth, or income fluctuations, may necessitate adjustments.
· Maximize Retirement Contributions: Aim to contribute the maximum allowable amount to retirement accounts like 401(k)s and IRAs. Not only does this secure your future, but it also offers potential tax deductions.
· Consider Health Savings Accounts (HSAs): Contribute to an HSA if you have a high-deductible health plan. HSA contributions are tax-deductible, and withdrawals for qualified medical expenses are tax-free.
· Plan for Charitable Contributions: Strategically time your charitable donations to maximize deductions. Donating appreciated assets can yield additional tax benefits.
· Manage Capital Gains and Losses: Strategize the timing of investment sales to minimize capital gains taxes. Consider offsetting gains with losses to reduce your overall tax liability. Utilizing unrealized capital gains in investments for charitable contributions is also worth considering.
· Stay Informed About Tax Law Changes: Keep abreast of tax law revisions and regulations. This knowledge enables you to adapt your tax strategy to new opportunities or changes effectively. The IRS website (irs.gov) is an excellent resource.
· Contribute to Education Savings Accounts: Invest in a 529 College Savings Plan for educational expenses. Earnings in these accounts grow tax-free, and some states offer additional tax benefits for contributions.
· Be Mindful of Your Income Throughout the Year: Tax brackets fluctuate annually, so understanding your projected income can help generate strategies to reduce your effective tax rate.
· Consult with a Tax Professional: Regularly seek advice from a tax professional to review your financial situation and receive personalized guidance. They can help identify specific opportunities and strategies tailored to your circumstances.
Remember, tax planning is an ongoing process. Addressing potential tax implications throughout the year can lead to more favorable outcomes not only for this tax season but others in the future.
General Financial Advice Disclosure:
It's crucial to note that the information provided here is general and not personalized financial advice. Individual circumstances vary, and before making any financial decisions, it is recommended to consult with me to assess your specific situation. Newmyer Wealth Management encourages you to speak with your accountant, tax advisor, or legal representative before acting on the information contained in this article. Newmyer Wealth Management does not provide actuarial, accounting, tax, or legal advice.