Year-round tax planning will make your life more worry-free next winter and spring.
At the height of summer, you probably don’t want to think about income taxes. There are far more pleasant, relaxing things to do when the weather’s good and you have some time off. Plus, it’s several months until the 2024 tax year filing deadline. So why start now?
There are plenty of reasons why this is the ideal time to start planning for your April 2025 tax obligations. We’re halfway through the year, so you may have had income and expenses already that will impact what you enter on your 1040. Was there a June wedding or an addition to your family? Did you buy or sell property? Make energy-saving improvements to your home? Did your employer give you a raise, or did you start a summer side gig? Take any combination business/pleasure trips?
Stay proactive about your taxes. If you wait until the last minute, you may find that you’re missing some critical forms. And what if an emergency comes up in April and you don’t have time for tax prep? For all of these reasons, we suggest you set aside some time before your schedule gets busy in the fall and start planning for next spring.
Did you start a side gig in 2024 and/or incur business expenses? Time to start thinking about your Schedule C.
Tips for Year-Round Tax Planning
If you’re conscientious about putting in some work on your taxes throughout the year, you’ll do more than just make your life easier in early 2025. You may actually minimize your tax obligation because you’re tracking your income and expenses as they occur and will be less likely to forget about a deduction or credit you might claim. Plus, as you see how your taxes are shaping up, you can consider the tax implications of purchases you might want to make later in the year.
But where do you start? Here are some ideas.
Pay attention to tax law changes.
Congress can alter the IRS tax code until December 31, 2024. Keep a close eye on anything that might affect you personally so you can plan accordingly.
Analyze your employee withholding.
Do you typically get a large refund after filing? That can be fun, but you could have been using that money throughout the year. Did you get a raise, change your marital status, or have a baby? Adjustments to your withholding may be in order.
Start organizing your income and expenses using technology.
If you’re self-employed or have a small business, doing income taxes manually can be a nightmare. This is true even if you’re filing individually. You have to be diligent about maintaining detailed, accurate records of your income and expenses. Consider using something like QuickBooks or Quicken Simplifi. These applications allow you to import transactions from your financial institutions, categorize them so you know what is tax-related, and run reports that can help you in your tax preparation.
Get familiar with unfamiliar tax forms.
We’ve already talked about the Schedule C that small businesspeople and gig workers must file. Do you have a good understanding of IRS deductions and credits? If not, we suggest you do some homework when you have an extra hour or so this summer. Skim through the IRS 1040 instructions. You don’t have to read every word. But pay attention to the headings and explore any topics you don’t recognize.
Are you aware of all the expenses you can deduct on your income taxes? Browsing through IRS forms and instructions can introduce you to potential savings.
We can think of better ways to spend 60 minutes at the height of the recreation season, but none that might actually save you money. Instead of just matching up your tax documents to the right lines on the IRS 1040 when you prepare your taxes, do the opposite: Learn ahead of time what you don’t already know about how the agency allows you to minimize your tax bill.
Don’t want to automate? Set up a good manual system.
If you don’t want to put your financial information online, you’re not alone. Though web-based money management is becoming more popular, lots of people aren’t comfortable with it yet. If that’s the case, create a manual storage system that’s devoted solely to your tax information for the current year. Use file folders or large envelopes to store tax-related receipts and other documents.
You may want to use Microsoft Word and/or Excel for additional recordkeeping (like saving a master list of tax papers received). And if you have a small business or do gig work, keep all of your receipts, even if you maintain a separate list of expenses, which we recommend.
Let us take on your taxes.
For many people, income tax preparation is reactive. That is, they sit down after the first of the year and tally up their income and expenses, hoping that they can take enough deductions and credits that their tax obligation won’t be oppressive. Year-round tax planning makes tax prep proactive. If you’re tracking money in and out all year long AND you’re familiar with what’s built into the tax code to shave dollars off of your bill, you can take actions during the year that will work in your favor.
Not sure what these might be? Let us take a look at your finances and see if we can suggest ways to lower your tax bill. We can help you with planning, and we can do the actual preparation when the time comes. We’re here for you and all of your tax needs.
