Why Year-Round Tax Planning Is So Important

By Brett Gottlieb

Tax preparation has long been viewed as a frantic, last-minute effort to help reduce tax liabilities. However, effective tax planning isn’t just a once-a-year task, it’s an ongoing process. Proactively managing your finances throughout the year allows you to refine your tax strategy, diminish your overall tax burden, and strengthen your financial well-being.

In this article, I break down why year-round tax planning is essential and provide practical tips to seamlessly incorporate it into your financial routine.

Why Year-Round Tax Planning Matters

There are several upsides to tax planning throughout the year, including:

• Reducing time pressure and stress during tax-prep season
• Avoiding missing certain year-end deadlines
• Allows for maximizing contribution limits
• Helps provide confidence and planning for available deductions to reduce taxable income

Tips for Year-Round Tax Planning

While it may seem daunting to plan for taxes year-round, it doesn’t have to be. Here are some easy ways to develop good tax-planning habits all year long.

Optimize the Use of Tax-Advantaged Accounts

Traditional IRAs, Roth IRAs, 401(k)/403(b) retirement accounts, and health savings accounts (HSAs) are all effective, tax-friendly ways of both saving for the future and saving tax dollars. If you can, create a financial habit to contribute regularly to such accounts, reducing taxable income (where applicable), and increasing tax-deferred savings for your future.

Deferring Income

As your income increases throughout your working years, deferring part of that higher income for retirement offers both a current tax deduction and opportunities to grow your savings for the future. One effective strategy is to confirm payroll deductions to your 401(k) account maximizes any employer-match contributions, if offered.

Some larger employers may offer “deferred compensation” programs to executives and key employees. By deferring some of your income to such a program, you might lower both your tax bracket and your overall tax liability each year, since you are only taxed on this deferred income when withdrawn in retirement. Working with a financial advisor can help balance the benefits of deferring income against current cash flow needs and future tax and expense expectations.

Accelerating Income

During lower-income years, such as early retirement or during a job transition or layoff, consider strategies to accelerate or aggregate tax liabilities. For example, a full or partial conversion of traditional IRA accounts into an after-tax Roth IRA are effective in taking advantage of a temporary lower tax bracket situation, allowing for great tax-free growth of retirement assets.

Taking Required Minimum Distributions (RMDs)

Once you reach age 73, you’re required to take RMDs from traditional retirement accounts like IRAs and 401(k)s. (Under the SECURE 2.0 Act, that RMD age will rise to 75 in 2033.) These withdrawals are subject to income tax, and missing them can result in hefty penalties. Managing RMDs effectively requires looking ahead to determine how they might impact other income sources and trigger additional taxes or higher Medicare premiums. Strategies to lower the impact of RMD income include Roth IRA conversions and directing unneeded RMD income to charitable causes, where the charitable deduction offsets the taxable distribution.

Tax-Loss Harvesting

If you hold investments in taxable accounts, tax-loss harvesting can be a valuable strategy to offset capital gains by selling investments at a loss. These losses can help to both offset otherwise taxable investment gains and are deductible to some degree against other ordinary income. It’s essential to be aware of the wash-sale rule, which prevents repurchasing substantially identical securities within 30 days of the sale, ensuring the tax loss is valid.

Bunching Deductions

Bunching is a savvy tax strategy for people who want to help maximize their itemized deductions. By bunching several expenses into one year, you increase the chances of your total itemized deductions exceeding the standard deduction amount and you thereby have a larger deduction against income, leading to more significant tax savings

For example, instead of donating $1,000 to your favorite nonprofit each year, you might donate $10,000 in one year, allowing you to itemize in that year and potentially benefit more from the deduction. Bunching can apply to other expenses as well, such as medical expenses and business expenses. Just be mindful of certain caps or limitations on deductions, so you can take full advantage of this strategy.

Keep Thorough Records

Pay stubs and receipts shouldn’t be kept in a shoebox. It’s important to know how much you made during the year and how much you’ve spent on items that qualify for tax deductions. Technology is on your side here. Apps and software help you keep track of deductible expenses and can automatically organize and track your budget.

Maintain Receipts for Deductions and Credits

Maintain records of out-of-pocket business expenses, mileage for business purposes, charitable contributions, and educational costs. If you use a home office, track home utility costs to take full advantage of a home office deduction. All these expenses are potentially deductible and having this information already available makes tax prep much easier.

Modify Your Withholding and Estimated Payments

If you are a W-2 employee, after each tax season, check your federal/state tax withholding to confirm it matches your anticipated tax liability for the coming year. If you are self-employed, accurately paying estimated quarterly taxes can help to avoid underpayment penalties or large tax surprises when you file each year.

Get Ready for Filing Early

Know in advance the types of tax documents you’ll need to file your return and start collecting them as soon as available. These include W-2 tax forms, 1099 income statements, 1099R distribution forms, and 1095-A medical insurance statements. You don’t have to wait until the last minute!

Collaborate With an Experienced Advisor

Rather than just avoiding surprises during tax season, year-round tax planning is a proactive approach to preserving your wealth, optimizing your financial opportunities, and pursuing long-term financial success. At Comprehensive Advisor, we work with your qualified tax professional to integrate tax strategies directly into your comprehensive financial plan, so every decision aligns with your broader goals.

Let’s make your tax-efficient strategy work for your retirement. Email us at info@ComprehensiveAdvisor.com or call (760) 813-2125

About Our Advisors

Brett Gottlieb is the founder of Comprehensive Advisor and a financial advisor with nearly two decades of industry experience. He graduated from California State University-Chico with two bachelor’s degrees, in business administration and economics, and is Life Insurance licensed in several states. He is passionate about guiding his clients on retirement income planning, helping each client pursue their specific retirement goals, and defending the assets his clients have worked so hard to achieve. Brett is a California native and currently resides in San Elijo Hills with his beautiful wife and three children.

Our team of qualified professionals have experience in the financial service industry, and our advisors hail from some of the largest independent broker/dealers and banking institutions in the country. They have dedicated their professional careers to creating personalized financial strategies for individuals and families who seek successful retirement planning and currently offer investment advisory services through AE Wealth Management, LLC. Our advisors take a common-sense approach to the planning process and work with clients to create a comprehensive retirement roadmap to help ensure their assets are preserved and they receive the income needed to enjoy their future. Based in Carlsbad, California, they work with clients throughout San Diego County and beyond. Learn more by connecting with Brett on LinkedIn or email them at info@ComprehensiveAdvisor.com.

Investment advisory products and services made available through AE Wealth Management, LLC (AEWM), a Registered Investment Advisor. Comprehensive Advisor, LLC is an Investment Advisory practice that offers products and services through AE Wealth Management LLC (AEWM), a Registered Investment Advisor. AEWM does not offer insurance products. AEWM and C.A. Financial & Insurance Services are not affiliated companies. Insurance products are offered through the insurance business C.A. Financial & Insurance Services. The insurance products offered by C.A. Financial & Insurance Services are not subject to investment Advisor requirements. CA Ins. Lic. #6000262 AEWM and C.A. Financial & Insurance Services are not affiliated companies. Neither the firm nor its agents or representatives may give tax or legal advice. Individuals should consult with a qualified professional for guidance before making any purchasing decisions. 2985085 – 4/25