Efficient tax planning helps you to know what taxes will look like throughout the year. To the contrary, no tax planning, we compare this to calling the fire department when the house has already burned down. At this point, nothing can be done and you most likely have missed opportunities and possibly left savings on the table. Here are a few items to keep in mind when laying out a vision for this year’s taxes:

• Current tax penalty: Hit an all time high of 8% between October 1, 2023 through March 31, 2024. Even worse considering this is not deductible since it’s paid with after tax dollars. As interest rates and inflation have risen, tax penalties have increased significantly.

• “Safe harbor”: Penalty free zone depending on your income, calculated as 100% of the prior year’s tax (110% if adjusted gross income is above $150,000) or 90% of taxes due for the current year. Most W2 employees are typically with few exceptions. Those who are self-employed or who do not pay tax throughout the year typically need to make quarterly estimated payments.

• Projected Total Income: It may sound crazy to start accurately estimating early but it is an important component.
o Work – consider any projected raise, bonuses, and stock vestings
o Portfolio – include projected interest and dividends
o Pension and other expected retirement income

• Best Place To Save: Maximizing your employer retirement plan to lower your current taxable income. Deferring tax payments to the future when you take distributions during retirement with a hope of a lower tax rate. If you feel comfortable with your savings accounts, then a Roth IRA for additional after-tax saving makes great sense.

• Tax Loss Harvesting: By selling securities in a brokerage account, an individual can offset income up to -$3,000 or be used to offset other investment capital gains.

• Charitable Donation Strategies: Focus on charity from the goodness of your heart, not just for deductions.
o Qualified Charitable Distributions (QCD’s): at age 70½ individuals can send a portion of their IRA accounts directly to a charity. You don’t get an itemized deduction but the distribution is not taxable while going towards satisfying your required minimum distribution (RMD) for the current year.
o Donor Advised Fund: a “billpay” account to use for charity typically funded by appreciated stock securities to use towards your itemized deductions.

• Gifting and Funding Education for your kids/relatives:
o Annual gift exclusion is $18,000 per person per year
o Consider gifting shares of appreciated stock to children to have taxed under their name for considerably less tax. If shares are sold as a student, they could be entitled to college credits to heavily reduce their income tax
When providing paystubs, profit & loss statements, or income forecasts, we piece together the puzzle to ensure no surprises come April 15th. Efficient tax planning starting in April with updates along the way allows you to keep more money in your pocket than in Uncle Sam’s.