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An infographic by SYM Financial Advisors titled "Tax Time Checkup" shows that 62% of Americans expect a tax refund. It details how they plan to use it: 54% on savings, including emergency savings, 32% on debt, 27% on daily expenses, 12% on home improvement, 10% on major purchases, 8% on vacation, and

Next Year’s Income Tax Planning Starts Now

Whether you are the type to submit your tax filing early or you wait until the April 15th deadline, there are ways to make the annual necessity easier on yourself.

Income tax filing doesn’t have to be a frantic race. If you develop the right habits now, you can take small steps all year long, which will make the tax-filing project much simpler. That can lead to a quicker, smoother filing — and can potentially help you lower your tax bill, too. Here’s how to get started.

Get Organized  

The best advice for anyone looking for ways to start tax planning is to simply get organized.

Oftentimes, the biggest challenge to filling out those IRS forms is locating the information and documents that you need. This can be solved by creating a special place in your house for all of your tax-related files and other important papers.

A few suggestions might be:

  • A designated file folder
  • A drawer in a desk
  • A plastic tote

As long as you have something that will fit several sheets of 8.5 x 11-inch paper, then it will work! And once that is done, you can improve your storage system by going digital and “filing” the paperwork in an organized way.

Go Digital

A great way to cut down on the clutter (and to build a library of easily searchable tax documents) is to convert your important files to PDFs. This can be done with a relatively inexpensive scanner or an app on your phone.

Be thoughtful about where you ultimately store these documents. You won’t want identity thieves to get access to your sensitive information, like your Social Security Number or Tax ID. If you store those documents in the cloud, be sure to protect your access with a strong, unique password. If you store them in a USB drive or a similar device, take care to not misplace it (and to layer password protection on the files anyway).

Group Your Documents by Category

Whether you decide to go hardcopy or digital, another step that can make tax preparation easier is to group your files together.

For instance, you may want to bundle:

  • Employment income documents such as W-2s and 1099’s;
  • Interest and dividend statements from your financial institutions;
  • Expenses that can be itemized (property taxes, medical bills, donations, etc.); and,
  • Business income and expenses from any side hustles you may have.

This approach can help you stay better organized and make the tax filing process more efficient.

Max Out Your Retirement Plans

You may already know that contributing to your 401(k) and IRA can help you build up your nest egg and put you on a path toward a comfortable retirement. But contributions to these accounts can also lower your tax bill for the year. Here’s how.

Why Retirement Contributions Lower Your Taxes

Every time you contribute to a traditional-style retirement plan, the IRS allows you to defer the taxes you owe on this income into the future. To account for this on your tax return, your contributions will be subtracted from your reported income. This will lead to a lower adjusted gross income (AGI), the number that your taxes are initially based on (before credits are applied).

In other words, the lower you can make your AGI, the lower taxes you’ll have to pay. From a tax savings perspective, it’s in your best interest to save as much into these accounts as possible.

But Build Your Emergency Fund First!

Retirement accounts are a great place for you to save money. But remember that there are taxes and penalties for withdrawals made before you’re 59-1/2 years old. Those accounts are best kept off-limits for covering emergency expenses — unless you are prepared to pay the penalty. Instead, you need a pool of money that you can access quickly and use without any restrictions.

For this reason, it is a good idea to prioritize building your emergency savings account. Aim to have three to six months’ worth of living expenses in easily accessible cash for whatever life throws your way, from a job loss to an expensive medical bill, an unexpected auto repair, etc.

Strategically “Bunch” Your Deductions

Even though most filers take the standard deduction ($12,950 for single filers and $25,900 for joint filers in 2022), for some people, it makes financial sense to add up their itemized deductions. If you’re really close to your itemized deductions being greater than the standard deduction, then you may want to consider a strategy called “bunching.”

Bunching allows you to intentionally make additional qualified payments or charitable donations this year that you’d normally make in the following year. This allows you to boost your itemized deductions for the current year, claim a higher deduction, and pay fewer taxes.

Offset Your Gains

If you have any taxable investments that have underperformed this year, then you may want to consider selling them. When you do, the IRS allows you to offset your capital gains on other investments that have performed better by these realized losses. This is a strategy known as “tax-loss harvesting.”

The benefit of tax-loss harvesting is that you’ll owe less tax overall. While the maximum amount of capital losses a taxpayer can realize in a calendar year is $3,000, the excess of that is carried over and can offset gains in future years. Financial advisors work hard with their clients to make these decisions before year-end because the sale of underachievers has to be done before Dec 31st, not April 15th.

Even more taxes can be saved when capital gains are offset with losses.  An effective financial advisor will oversee your investments and work with your tax professional to identify tax-loss harvesting opportunities for you. They will consider not only your investments but also other life events such as the sale of a business or future plans that could offset your tax burden. There are many factors to consider in tax planning so consult your advisor for their guidance on the most tax-efficient move for your particular situation.

Watch Out for Tax Scams

Have you received any suspicious phone calls or emails about your taxes? Each year, more than 2.4 million people are targeted by IRS impersonators who are trying to scam them out of money or personal information.

The IRS has said consistently that unless you owe a significant amount of back taxes, they will not call or email you. They will first notify you by mail, and they will certainly never threaten you to make a payment.

In addition, thieves may also try to trick you during tax season through the use of fake websites, phony charities, and even crooked return preparers. If you’re ever in doubt about anything related to your taxes, call the IRS or your state Treasury department directly.

Work with a Financial Advisor Who is Tax-Aware

A CPA is great for helping you file your taxes. But with all of the uncertainty about what the future holds, it’s important to understand the tax side of your financial picture. This is especially true as you get closer to retirement and need every dollar of income you can get.

That’s why you’ll want to work with a financial advisor who understands the tax rules and can help you design a plan for minimizing what you’ll owe in the future.

If you want to explore this and other tax planning strategies for retirement, be sure to register for our free webinar, “The Road to a Tax-Savvy Retirement.” It is a great way to learn about our thinking on retirement planning, taxes, and some of the strategies that clients may consider to potentially lower their lifetime tax bill.

You can learn more and register by clicking on this link.

Remember, the less you have to pay to the government, the more you get to keep. Join us to learn how to avoid common mistakes and plan for a peaceful, secure retirement — even in the midst of inflation uncertainty.

Disclosure: The opinions expressed herein are those of SYM Financial Corporation (“SYM”) and are subject to change without notice. This material is not financial advice or an offer to sell any product. SYM reserves the right to modify its current investment strategies and techniques based on changing market dynamics or client needs. Information was obtained from third party sources which we believe to be reliable but are not guaranteed as to their accuracy or completeness. SYM is an independent investment adviser registered under the Investment Advisers Act of 1940, as amended. Registration does not imply a certain level of skill or training. More information about SYM including our investment strategies, fees, and objectives can be found in our ADV Part 2, which is available upon request.

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