Everyone agrees that the tax code is too complex. While the need for tax reform is a common refrain in Washington, the likelihood of a substantial change is low. Too much is invested in the status quo. While everyone complains about the other guy's deduction, they are loathe to give up their own.
Remember that our complex, often confusing tax code benefits those who take the time to learn its details and use it to their advantage. I will offer occasional tax planning tips designed to help ensure that you pay only the taxes you owe.
Tip #1: Remember that tax planning is a year-round exercise
In some ways, tax planning is similar to maintaining real property: Proper diligence ensures that repairs are kept small, with minimal damage.
Tax planning and actions to reduce taxes can be made throughout the entire year — January through December — to ensure you pay only the taxes you owe.
If you are self-employed, or if your income fluctuates, you should consider using quarterly tax payments requirements to review your investment assets and each asset's impact on gross earnings; as well as your current income from self-employment.
For example, you might want to sell securities to establish short-term losses or long-term gains, alter or fund retirement plans, or incur or defer medical expenses based upon balances in a flexible medical savings accounts.
Don’t wait until April of next year to make decisions! Instead of being reactive, proactively plan now to take advantage of all the possibilities.
From Tom Brunberg, head of Wade Financial Group’s Year Round Tax Planning Service.