Why Year-Round Tax Planning Is So Important

For many people, tax preparation is a rushed effort at the start of the year, filled with stress and last-minute deductions. But smart tax planning isn’t something you do once—it’s an ongoing process that helps you optimize your finances, avoid surprises, and keep more of your hard-earned money.

This article breaks down why proactive tax planning is an essential part of your financial plan and how you can incorporate simple strategies throughout the year to make the most of your savings.

Why Year-Round Tax Planning Matters

Taking a proactive approach to taxes offers significant benefits—both emotional and financial. It reduces stress, eliminates uncertainty about what you owe, and allows you to leverage every available tax-saving opportunity. With just a little preparation, you can take control of your tax situation rather than letting it control you.

Tax Planning Strategies to Use All Year

While tax planning may sound complicated and confusing, it doesn’t have to be. Here are some straightforward ways to build smart tax habits into your financial routine.

Optimize Tax-Advantaged Accounts

Contributing to accounts like 401(k)s, HSAs, and IRAs not only helps you save for the future but also lowers your taxable income today. If possible, aim to contribute the maximum allowed each year.

Time Your Income Strategically

Deferring income: If you’re in a high-earning year, consider delaying some income until a lower-earning year, especially if you have access to a deferred compensation plan.
Accelerating income: If you’re in a lower tax bracket due to a job transition or business slowdown, it might make sense to recognize more income now—such as converting a traditional IRA to a Roth IRA.

Plan for Required Minimum Distributions (RMDs)

Starting at age 73, the IRS mandates withdrawals—known as required minimum distributions—from traditional retirement accounts such as IRAs and 401(k)s. (This age will increase to 75 in 2033 under the SECURE 2.0 Act.[1]) These withdrawals are taxed as income, and failing to take them on time can lead to steep penalties.

To help reduce tax consequences, it’s important to plan ahead. RMDs can affect your overall taxable income, potentially pushing you into a higher tax bracket or increasing Medicare premiums. Consider strategies like spreading withdrawals throughout the year to manage cash flow or converting a portion of your traditional IRA to a Roth IRA to reduce future tax liabilities.

Use Tax-Loss Harvesting

If you have taxable investments, you can offset gains by selling underperforming assets at a loss. Just be mindful of the wash-sale rule[2], which restricts repurchasing the same investment within 30 days.

Bunch Your Deductions

Bunching is a strategic approach to tax planning that helps you maximize itemized deductions. By concentrating certain expenses into a single tax year, you increase the likelihood of exceeding the standard deduction threshold, allowing you to itemize and potentially reduce your taxable income more effectively.

For instance, rather than donating $1,000 annually to a charity, you could contribute $10,000 in one year. This larger, lump-sum donation may push your total deductions beyond the standard amount, making it more beneficial for tax purposes. Bunching isn’t limited to charitable giving—it can also apply to medical expenses, business costs, and even contributions to a 529 college savings plan. However, it’s important to be aware of deduction limits and eligibility rules to optimize this strategy to its fullest potential.

Keep Your Records Organized

Maintaining detailed records of income, expenses, and deductions throughout the year makes tax filing easier and means you don’t miss valuable tax-saving opportunities. Use apps or software to track deductible expenses and keep digital copies of all receipts.

Adjust Your Withholding or Estimated Payments

If you’re employed, review your withholding to keep it aligned with your expected tax liability. For self-employed individuals, making quarterly estimated tax payments helps prevent unexpected tax bills at the end of the year.

Prepare for Filing Early

This last tip can make tax season much smoother. Be proactive by knowing which tax documents you’ll receive and start gathering them early. Once everything is organized, you can file your taxes without the last-minute rush!

Collaborate With a Tax-Informed Advisor

Don't let financial planning become a burden. When you partner with John B Bennett, CFP® at Boyer and Sappenfield Investment Advisors, you gain a trusted advisor who understands the impact of taxes on your overall wealth strategy and is committed to optimizing every aspect of your financial plan.

As part of our comprehensive wealth management services, we take a proactive approach to integrating tax-efficient strategies into your financial plan. By understanding your unique financial situation, we help you reduce tax drag, find opportunities for growth, and keep your wealth working for you—both now and in the future.

Tax preparation and services are not affiliated with Cambridge Investment Research Inc.

[1]https://www.finance.senate.gov/imo/media/doc/Secure%202.0_Section%20by%20Section%20Summary%2012-19-22%20FINAL.pdf

[2] https://www.bankrate.com/investing/wash-sale-rule/