Tax Planning Season: The Other Tax SeasonOct 14, 2022
Did you know that there is another tax season? It's true! There are actually two tax seasons. One is the tax season you are probably familiar with and that is tax paying season. This lasts from January to April and is the time when Americans file their annual tax returns, get their refunds and pay what they owe. What you may not realize is that the other tax season lasts the remainder of the year and is much more important: tax planning season.
What is tax planning? Tax planning means understanding the impact that the decisions you make have on your tax situation and optimizing those decisions to align with your goals. For example, if you are a business owner, you may wish to purchase a new piece of equipment before the end of the year in order to maximize depreciation expense or you may choose to prepay some expenses to shift more expenses into the current tax year. In general, business owners have more opportunities to do tax planning but individuals can as well. For example, you may want to save for retirement or use a health savings account (HSA).
Tax planning starts with clearly identifying your goals. Sometimes your goal is to defer income into another tax year to minimize taxes or to maximize tax deductions. However tax planning can also include pulling in more income into the current tax year if you feel it will be more advantageous to your overall strategy. You have to consider the long term impact of strategies as well.
Tax planning happens year-round, but the most important thing to remember is that when the clock strikes midnight on December 31, most tax planning strategies are no longer available. That is why it is so important to have conversations with your tax professional year-round. The most important thing to remember about tax planning is that it should be an ongoing process. If you are meeting with your accountant or tax professional once per year, that is not enough to get the maximum value out of the service.