10 Tips in Planning for Taxes

10 Tips in Planning for Taxes

Estate Planning


“In this world, nothing is certain but death and taxes.”  Benjamin Franklin.  While taxes may be a certainty, you can minimize your obligation with a little planning.  The time to plan is before you sit down to file your taxes on April 15th.  Minimizing your taxes is a yearlong process, with particularly important decisions to make as the end of the year approaches.


  1. Keep good records.  Good recordkeeping will help you remember all of your deductions.  Without records, can you really remember that $20 you donated sometime last spring?  Few of us can.  These records help you substantiate your deductions, which you may be required to do if yours is the lucky return chosen for audit.
  2. Time income and expenses to your advantage.  If you have control over income and expenses, time them to your advantage.   If you expect you will be in a lower tax bracket next year, you may want to defer some income until next year or accelerate some expenses into this year.  For example, you could prepay the second installment of your property taxes, pay the fourth quarter installment of state income taxes in December instead of January, or buy some supplies needed in your business.
  3. Examine your investments.  Did you sell any assets this year?  If so, did you have a gain or a loss?  You may want to offset the earlier transaction with an opposite one.  For example, if you had a gain, you may want to harvest a loss to lower your taxes.  Remember, also, capital losses exceeding capital gains can be used to offset up to $3,000 of ordinary income (normally taxed at a higher rate).
  4. While you are examining investments, do you have any mutual funds?  Each fund has a “distribution date” upon which it makes distributions of gains and losses.  If you do not own the fund on that date, you do not get saddled with the income.  If you were considering selling the fund, it may be wise to do so prior to that distribution date, depending upon what income is expected to be distributed.  Similarly, be aware that by buying a fund right before its distribution date, you may be paying taxes on income earned by the fund before you owned it.
  5. Contribute to retirement accounts.  You have until year-end to fund 401(k) and similar retirement plans.  These allow you to contribute tax-deferred dollars.  You can contribute to IRAs and Roth IRAs up until April 15th of the year after the year in question.  However, if you want to convert from a regular IRA to a Roth IRA, you must do so by December 31.  While Roth IRAs do not save on your current tax bill, the assets grow tax-free rather than just tax-deferred like a regular IRA.
  6. Be sure to take any minimum required distributions from retirement accounts.  After you have reached age 70-1/2, almost all retirement plans have a minimum required distributions.  Be sure to take at least that distribution or you could be slapped with a significant penalty.
  7. Flexible spending accounts.  If you have a flexible spending account at work, typically you have until the end of the year to use it or lose it.  Therefore, if you are approaching year-end, you may want to schedule whatever medical appointments you can cram in to take advantage of the remaining funds.
  8. Charitable contributions.  If you are considering making a charitable contribution, typically it is best to make that contribution before year-end to get the deduction in this year rather than next year.  However, if you expect to be in a much higher tax bracket next year, it may be to your advantage to defer the contribution until it can help you more.
  9. Bunching deductions.  Consider bunching deductions that are subject to floors.  For example, medical expenses must exceed 7.5% of your adjusted gross income before being deductible.  If you can bunch any elective surgery, stock up on supplies, etc., you may be able to time the expenses so that they exceed that threshold and make some of them deductible.
  10. Traps for the unwary.  In deciding the strategies above, do not forget the impact of deduction floors, deduction haircuts due to higher income, alternative minimum taxes, state taxes, etc.  Some deductions are subject to a minimum level before being deductible.  Most deductions are subject to reduction if you make too much money.  Alternative minimum taxes can kick in if you have many deductions.  Consider the impact of these items by talking with your tax  professional or by using tax preparation software and seeing the impact by looking at the tax in each scenario.


Careful planning throughout the year can help you minimize your tax bill come April 15th.  Be a savvy taxpayer and arrange your transactions to pay only your fair share of taxes.