5 Steps for General Tax Planning

Jul 25, 2022 | Insights

Most of us are familiar with tax preparation – the act of pulling together our annual income and expenses to complete our tax returns or pass the information on to our accountant or tax preparer to complete our returns.  Tax preparation is typically focused on the most recent year-end and looks at what has already occurred.  Tax planning, on the other hand, is more strategic and is designed to work along-side your investments and your financial plan to minimize the tax burden at both the federal and state levels in the short-term and the long-term.

Tax planning considers the timing and size of income and expenditures, the acquisition and divestment of investments, as well as the utilization of various types of retirement plans.  Tax gain and tax-loss harvesting is a key part of tax planning related to investments.  Ultimately, tax strategies can help you maximize your income while minimizing your taxes.

  1. Prepare your long-term tax strategy 

A good starting point in preparing your long-term tax strategy is considering whether you want to tackle the planning yourself or engage a trusted resource to assist with the plan.  Available resources include, but aren’t limited to, an accountant, a Certified Public Accountant (CPA), a tax preparation specialist, a Certified Financial Planner (CFP® professional), or some combination of these options.  Each type of professional brings different skills and expertise to the table.  Overall, the choice is yours to determine if the additional cost of a professional resource might benefit you in the long-run by helping to identify the most tax-efficient long-term strategy and then determine which professionals might add the most value to your individual planning process.

Regardless of whether you go it alone or engage assistance, a multi-year look at tax planning offers the potential to free up money to help you meet your long-term financial goals.  While it is certainly difficult to navigate the numerous potential changes to the tax law for a multi-year plan, thinking about the future more broadly may help you offset future costs or prepare for your retirement by encouraging tax-efficient saving today.

Tax Strategies for Various Life Stages

  1. Establish your annual tax plan (short-term planning)

Some may think of short-term tax planning as what occurs at year-end in order to reduce your taxable income.  However, identifying your short-term tax plan early in the year enables you to implement decisions all year long and not just at year-end.  In the context of your multi-year plan, short-term planning helps you think about what you can do this year to help you on the path to your long-term goals.

Sharing information from your annual plan with your investment adviser, or engaging them in the planning, can help them help you achieve your goals.

  1. Mid-year review of your annual tax plan

A mid-year review of your annual tax plan is not a requirement, it is an opportunity to see how you are progressing on your plan and initiate any course corrections necessary to help you meet your year-end goal.  You should take the time to meet with your accountant or tax preparer for a brief check-in.  You can review your withholdings and your estimated tax payments to determine if changes now will be helpful for year-end.  Take a look at any changes to your income and expenses which were not part of your plan at the start of the year and evaluate the potential impact on your taxes.  Consider what is coming up at year-end and start organizing for the tax preparation process.

An advantage of a mid-year review is that no one is rushed.  There is time to carefully consider alternatives and choose the best course of action without the burden of a looming deadline.  Information gleaned from the mid-year tax planning review can be shared with everyone involved in your financial planning so necessary adjustments can be made across the board.

  1. Year-end review of your annual tax plan

Another check point at the end of the third quarter or start of the fourth quarter will help you make sure that the changes identified mid-year were implemented and are having the desired results.  It’s also a good time to make sure you are on track with any annual requirements (like a required minimum distribution from your retirement plan).

Again, the key is to allow yourself and any of the service providers working with you time to institute any final changes to optimize your year-end tax efficiency.  Whether it’s adjusting your spending or savings, realizing gains or losses through your investments, or making annual gifts to charity, you have the fourth quarter to make it happen.

  1. Tax prep and initiate annual tax planning for next year

Pulling everything together for your taxes should be a little bit easier since you’ve been following your plan since the start of the year.  Here’s a very simple list of what might be required.

  • Social Security documents
  • Income statements such as W-2s and MISC-1099s
  • Tax forms that report other types of income, such as Schedule K-1 for trusts, partnership, and S corporations
  • Tax deduction records
  • Expense receipts

In addition to preparing your tax return for the prior fiscal year, this is also a great time to think about things which may impact your multi-year tax plan and consider items which might be reflected in your next short-term plan for the coming tax year.  For example, revisiting your withholding elections, the timing of retirement plan contributions, considering how and when any tax-loss carryforwards may be applied, and thinking about any credits or deductions you might have missed out on last year and how to take advantage of them next year.

Tax plans, like most other financial plans, should be constantly evaluated and updated as your situation changes. 

How to Get Started

If you’re looking for assistance with tax planning, contact your trusted financial advisor, and they should be able to give you advice and guide you through the process. 


About Chase Investment Counsel

Chase Investment Counsel is a family and employee-owned boutique wealth management firm that offers personalized investment services. Our clients include career professionals, those nearing or in retirement, and families experiencing financial transitions such as generational wealth transfer, widowhood, divorce, or sale of a business. Chase’s active, disciplined investment management team is focused on selecting individual stocks and bonds targeted to each investor’s specific financial goals and risk tolerance. Established in 1957 in Charlottesville, VA, Chase Investment Counsel manages more than $300 million in assets.