The Value of Proactive Tax Planning

April 10, 2023

I recently spoke with a new client who works for Raytheon Technologies. Her accountant told her she owed $35,000 to the IRS, and called me looking for advice about how to reduce what was owed. Sadly, in this case, the best option required a time machine.

Most people don’t want to think about taxes all year long. They’re painful, so we think about them just before April 15th every year. This aversion misses a great opportunity. The best time to think about your 2022 taxes would have been sometime last fall, rather than now, when the taxes are due. Annual tax planning avoids the types of surprises my client received. The window to execute most tax strategies is December 31st.

Most of our clients work with Certified Public Accountants or other tax preparers, but few request a meeting in September or October to talk about tax planning and their specific situation. Their busiest time of year is February through April when all of their clients want an appointment. But in September and October, they’re relatively free. They can focus on your needs in a more strategic way. Daniel H. Pink is the author of the New York Times bestseller “When: The Scientific Secrets of Perfect Timing.” His thesis focuses on how the timing of when you meet people can create totally different results. When the person you’re meeting has excess capacity – and time to think strategically, your results should be better.

This is especially vital for those with more complicated financial situations, like restricted stocks, stock options or bonuses. These filers could greatly benefit from tax planning early enough in the cycle that there’s still time to act.

If you have had a job change, retired, or have had a major life change like a marriage, divorce, or new home purchase, a tax planning meeting in the fall can help you avoid surprises in April.

There are many tools a CPA can work with in the fall to change a filer’s tax burden. They include:

  • Adjusting estimated tax payments
  • Adjusting withholding amounts
  • Changing charitable and Donor Advised Fund contributions
  • Increasing Health Savings Account contributions
  • Opening a retirement account or increasing retirement contributions
  • Paying state and local taxes before the end of the year
  • Focusing on business expenses/purchases for those self-employed
  • Examining possible capital losses to offset other income

“Tax planning” may sound a bit intimidating, but it’s not. We are happy to help clients by providing all the investment information your CPA would need detailing your taxable gains and losses. Apart from those documents, you’re unlikely to need much. The basic items you will need to bring to the 30–60-minute meeting includes your year-to-date salary and income information, including tax withholding, a list of charitable donations, and detail about any other gains or losses (real estate or investments) you may have had outside of your Gottfried and Somberg accounts. Your accountant should be able to handle the rest. And as always, if you have any questions or concerns – or would like us to meet with you and your tax preparer, we’re here to help.