Benefits of Early Tax Planning With a Financial Professional

Historical insight — Originally published June 10, 2024. Preserved as historical content; information may have changed.

Tax planning is a crucial component of personal finance and a vital component of your overall financial planning. Failing to consider tax planning could result in missed opportunities for tax savings and other tax opportunities. When it comes to tax planning, the earlier, the better, so meeting with your financial professional early in the tax year comes with many benefits and advantages.

Each tax deduction and credit has specific parameters and requirements to be met to claim them. With early planning, you will be able to take steps to maximize those deductions and credits throughout the year, so by the time tax season rolls around, your tax liability may be significantly reduced. It can also help you maintain the proper paperwork for each of these credits and deductions to be ready when it comes time to file your return.

One of the foundations of tax planning is strategically allocating assets to manage tax liability. Various investment strategies, such as tax-advantaged retirement accounts, can mitigate taxable income and gains on different investment vehicles. Knowing how these investments work and how they are taxed is something your financial professional may be able to assist you with during the investment process. This makes proper tax planning essential when making investments throughout the year.

Early tax planning makes informed financial decisions easier since the tax implications will be known in advance. Understanding the potential tax implications of business decisions, investments, and retirement plans may potentially allow for more sound and easier decisions and better overall financial strategizing for the future.

Early tax planning may allow for better timing for income and expenses that can be delayed. Deferring certain income or expenses into future tax years may be beneficial, and changing future taxable income into different brackets may be more advantageous or allow a taxpayer to take advantage of a future tax incentive later.

For taxpayers who incurred a higher tax burden than anticipated for the year, early tax planning will allow them to plan better for the upcoming tax year. When meeting with their financial professional, they can look at their assets to see if they are being appropriately managed to meet useful tax advantages and work toward avoiding potential issues that may increase their tax burden. Once they have addressed these issues, they may need to look at their income and withholding and make adjustments to reduce their final tax bill for the next year.

While it is easy to see that early tax planning has benefits, preparing before meeting with a financial professional can make the process easier. Taxpayers can make the most out of their tax planning session by following a few simple strategies.

More organized and accurate financial records can make tax planning efficient and successful. This includes properly accounting for all income, receipts of all expenses, and records of all investment transactions. This will provide a clear financial picture and help a financial professional identify potential tax deductions, credits, and other tax-mitigating opportunities that may have otherwise been overlooked.

Whenever opportunities for tax savings arise throughout the year, it is essential to be aware of them and take advantage of them, so taxes may be minimized at the end of the year. This can include tax-advantaged accounts such as Education and Health Savings accounts, which offer tax-deductible contributions and tax-free withdrawals for qualifying expenses, allowing taxpayers to pay for necessary expenses while managing taxes.

While early in tax season is an excellent time for tax planning with your financial professional, it is a good idea to contact them whenever you are thinking about a new investment asset or anything that may affect your tax situation. This will help you make informed decisions from the start, so you can work toward avoiding costly tax implications in the future and continue aligning your tax plan with your future financial goals.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.

To determine which investment(s) may be appropriate for you, consult your financial professional prior to investing.

This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax advisor.

Asset allocation does not ensure a profit or protect against a loss.

This article was prepared by WriterAccess.

LPL Tracking #555800