Your Retirement Center

Tax Planning

Tax planning never stops. And it makes sense for everyone — not just the wealthy.

No one can take a job, buy a house, get married, raise children, invest money or start a business without plunging into a sea of tax implications. While those implications are daunting, there are helpful principles you can use to keep your head well above water.

Tax Form


The best way to start tax planning is to analyze what you have now. That list includes your job, your home, your family, your life — and health — insurance plans and your retirement program. Most people start with their latest tax return and run scenarios. What can you do to ease the tax bite next time around? What about your deductions and credits? How can you keep better records of your deductible expenses?

The months up to April 15 are known as the tax season. The season's first deadline is on January 15, when you must pay the final estimated-tax bill for the previous year, if you owe the tax. By the end of January, you should receive a W-2 wage statement from your employer and Form 1099s and similar tax-related statements from your financial institution. It's a good idea to assemble these records as they arrive, choose the proper tax form, and do some preliminary figuring to find out whether you can expect a refund. The sooner you file your return, the sooner you'll bank the refund.
If you aren't due for a refund, make sure you'll have enough money on hand on April 15 to pay your tax bill for the previous year. If you're subject to estimated taxes for the current year, you'll need cash on April 15 for the first payment too. You have until April 15 to make a contribution for the previous year to an IRA. Retirement-savings contributions to SEP and Keogh plans for the previous year must be made by April 15 unless you get a return-filing extension.


  1. Don't think of tax planning as something you do only once a year when preparing to file your tax return. To be really effective, tax planning must continue throughout the year.
  2. Be wary of making financial decisions — especially investment decisions — for tax reasons alone. It's the total payoff that counts, not the immediate tax savings. Tax-free earnings from a municipal bond, or muni, for example, may yield less over time than the after-tax gain from a taxable investment.
  3. Develop a long-term financial and tax strategy, and make short-term moves to fit that strategy.
  4. In shopping for investments, remember the difference between tax-deferred and tax-free (or tax-exempt) income. If the income is tax-free, such as the interest from a municipal bond, you'll never have to pay federal tax on it. If the income is tax-deferred, such as retirement-plan earnings or the increase in a stock's value while you hold the stock, you delay paying taxes until you withdraw the plan earnings or sell the stock.
In the wake of tax season, the second quarter is the time to evaluate your long-term strategy. Review your return and make mid-term corrections. If your tax bill for last year was higher than it needed to be, see whether tax-exempt or tax-deferred investments would trim the bill for this year and fit into your long-term strategy. If you received a big refund for last year, you may want to have less money withheld from your paycheck or refigure estimated-tax payments for this year.
If you had to pay a lot on April 15, consider having more tax withheld or upping your estimated-tax payments. If you received a return-filing extension in April, you still have time to file your return. But the dates of your estimated-tax payments don't change.
Anyone may so arrange his affairs that his taxes shall be as low as possible; he is not bound to choose the pattern which will best pay the Treasury; there is not even a patriotic duty to increase one's taxes.

—Appeals Court Judge Learned Hand, 1934

Now is the time to estimate what your tax bill is going to be for the entire year and make year-end financial decisions to lessen that bill. If you don't expect your tax rate to rise in the coming year, you may want to delay part of your tax payment for a year by shifting some of your income into January. You may want to pay off deductible expenses in December to lower this year's tax. If you know you are going to earn a lot of capital gains for the year, consider selling stock at a loss to offset the gains. You must do it before December 31.
If you are planning to set up a tax-deferred Keogh plan, you must do it by December 31. You don't have to put any money into the Keogh plan until your return is due — usually April 15 of the following year. If you get an extension, you can wait even longer. If your employer offers a flexible spending plan, sometimes called a cafeteria plan, which lets you set aside salary for qualifying benefits, such as medical bills, you'll be asked to enroll during the fourth quarter for the following year.
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