Savvy Money: Make Tax-Planning an Ongoing Event

Morgan Ranstrom |

It's Tax Season! 

It’s here!  Everyone’s favorite part of the year, tax season. Right? Right?! 

Of course, I am being facetious.  Even if this is your favorite part of the year, I presume taxes aren’t the reason why.  Heck, even most accountants, some of whom eat, breathe, and drink taxes, don’t count this as their favorite time of year.  Taxes can be a slog.  There are decisions to make and records to compile.  You either must file your taxes yourself, a task even ‘DIYers’ dread, or you drag a big pile of papers into your tax preparer’s office, spilling over from the folder or box barely succeeding to keep it all inside. Worse, this year we have a new tax law that has left many confused as to just how much they’ll owe.  

The only consolation is that soon you will be done.  Your taxes will be signed and filed, a refund may be received, or you may have to pay-in. Either way, it’s over, it’s unlikely the IRS is coming for you, and you don’t have to think about this stuff for another ten months.  Phew!  

Well, I’m here with some good news.  Your taxes, or at least thinking about your taxes should be an ongoing event. Tax season, in other words, is never-ending even as tax filing is largely relegated to February-April. You thought I said good news? Well, I did! This is good news and I am only being slightly facetious this time.

It’s common to see filing your taxes as an administrative event. This isn’t necessarily wrong.  It’s something we all must do.  But there is a disconnect here, because most people are also looking to reduce their tax burden during tax season and end up dissatisfied with the entire process because they didn’t.  You see, there’s usually very little you can do to retroactively reduce your tax burden.  

That’s where tax planning comes in.  If filing your taxes is a backwards-looking administrative task, tax planning is a forward-looking process that helps you reduce what you pay to Uncle Sam, plan future financial decisions, and get organized in the process! 

It’s also more fun.  Seriously!

What effective tax planning does: 

  • Helps you organize your financial life and prepares you for tax season
  • Takes the pain and guess work out of tax season.  
  • Helps you find ways to reduce your annual tax bill
  • Ensures you pay only what you are legally responsible for, and no more. 
  • Takes advantage of opportunities to pay taxes in low earnings (or low tax bracket) years
  • Takes advantages of opportunities to defer taxes in high earnings (or high tax bracket) years. 
  • Teaches you to be more financially and tax savvy! 

Now, that doesn’t sound so bad, does it? Who wouldn’t like to make tax season easier and less stressful or reduce their tax bill if possible? 

Lucky for all of us, there are countless tax planning opportunities to consider: 

  • Roth Conversions
  • Increasing contributions to tax-deferred retirement accounts
  • Contributing to a Health Savings Account
  • Charitable Planning (Very important under the new tax bill)
  • Real estate decisions 
  • Harvesting Losses in your taxable investment account
  • Offsetting investment gains or even taking gains in low marginal tax rate years
  • Changing what investments are held in which accounts within your investment portfolio to ensure your portfolio is as tax-efficient as possible over the long-term. 
  • Deciding what to do with restricted stock or stock options 

This list is by no means exhaustive.  More, if you are a real estate investor or a business owner (or have a side hustle like a consultancy, etc.) there are even more opportunities to consider. In other words, there is simply more fun to be had.

Tax Planning & Personal Finances 

Effective tax planning is at the heart of effective financial planning. When you look at your personal finances holistically, you realize that most every financial decision – whether concerning investments, savings, or cash flow – has implications on your tax return.  To ignore this is to ignore an incredibly rich opportunity to optimize your financial life.  

As you organize your documents to file taxes this year, remember that it doesn’t stop here.  Rather, for 2019 and beyond, it’s just beginning.  Though it’s easy to think in a gross of tax world (gross income, gross savings, etc.) we actually live in a net of tax world. 

Make tax planning an ongoing event and reap the rewards of a savvier financial life.