6 Tax Planning Strategies for 2023
Now is a good time to start thinking about tax planning for the year ahead. To be clear, tax planning in January is focused on the current tax year, not the previous year you are about to file for. Essentially, if you wait until January 2023 to plan for the 2022 tax year the probability of making a significant impact on lowering your tax bills can be diminished with a few options.
Developing a habit of planning for the tax year starting in January, and ongoing will open the door to more opportunities to reduce your tax liability and reduce the stress on your tax professional come tax bill filing time.
Here are a few key things you can do in January to get a head start.
1. Taxable Income
Review all taxable income sources and your tax bracket(s). Knowing which sources of taxable income and the related tax bill associated with those sources will help you devise strategies to reduce the tax liability. Many taxpayers are unaware that they may have a choice when it comes to how things will be taxed.
Understanding the sources of taxable income you have is key to optimizing your tax situation. With careful tax planning, you can take control and minimize what goes out in each financial year by familiarizing yourself with which items are liable for taxation and at what rate. You may be surprised to find that certain choices come with a flexible approach so why not explore these opportunities today?
2. Tax Deduction
Review your tax deduction and the credits you are eligible for. Tax deductions reduce the amount of income that is subject to taxation, while tax credits directly reduce the amount of income taxes you owe. It is important to know which credits are refundable versus non-refundable to ensure year over year you are applying the best strategy for taking credits and deductions.
When it comes to taxes, deductions can be a powerful tool for reducing the amount of income you owe. Whether you opt for the standard deduction or manually itemize your tax-deductible expenses depends on which will provide greater savings and lower taxable income - freeing up more money in your pocket come April 15th.
Tax deductible categories
Work-related deductions
Itemized deductions
Education deductions
Health care deductions (health savings accounts/high deductible health plan)
Investment-related deductions
3. Retirement Accounts
Consider maximizing your retirement account contributions sooner rather than later. Oftentimes individuals will make retirement plan contributions close to the tax filing deadline because their accountant advised them to do so to get a bigger tax refund. By waiting until April of the following year, you miss out on as much as 15+ months of growth had you invested right away in January.
4. Tax Rules
If you have investments, now is a good time to review them to see if there are any opportunities to save on your tax bill, what I like to call “tax alpha”. While tax alpha may seem small in a given year, the power of compounding can create a significant long-term positive impact for investors engaged in proactive tax management. Tax alpha strategies may include tax-loss harvesting, direct indexing, ROTH IRA conversions, or adding tax types that are currently absent in your portfolio.
5. Tax Savings and Health Savings Accounts
Put your tax-advantaged savings account to work. While careful consideration must be made before doing so, it may make sense to invest in your Health Savings Account (HSA) or Flexible Spending Account (FSA) instead of leaving the money in a low-interest rate account looking at tax savings.
6. Income Taxes
Review your withholding(s). Make sure that your employer is withholding the correct amount of tax from your paychecks. If you are not having enough tax withheld, you may end up owing money when you file your tax return. On the other hand, if you are having too much tax withheld, you could be giving the government an interest-free loan. You can use the IRS's withholding calculator to help determine the correct amount of tax to have withheld.
Tax planning Strategies
Tax planning is an ongoing process, and it's important to review your taxes and tax strategies regularly to make sure you are taking advantage of all available tax breaks and tax deductions. By getting a head start on your proper tax planning in January, you can set yourself up for a successful tax season and potentially save yourself some money in the process. Taking the necessary steps to get all of your paperwork organized and staying up-to-date on any changes to state or federal tax laws will help you immensely.
Additionally, researching qualified deductions and credits that you may be eligible for can help you save on taxes owed or possibly get a larger return at the end of the year. It's also important to itemize business expenses and plan ahead for succession planning. Being proactive in setting aside money throughout the year can make filing taxes much easier when the time comes.
Have tax planning questions you want to be answered?
Contact the tax planning team at Silvertree to avoid paying too much in taxes by getting help with proactive tax planning, tax return analysis, or smart cash flow planning strategies.
Information provided is not intended as tax or legal advice and should not be relied on as such. You are encouraged to seek tax or legal advice from an independent professional.
About the Author
Jason Glisczynski, CPWA®, CFP®, CAS®
CERTIFIED FINANCIAL PLANNER™ Professional
Jason specializes in helping individuals with planning for retirement and has nearly 20 years of advisory experience, is a Certified Private Wealth Advisor® professional, CERTIFIED FINANCIAL PLANNER™ professional, an Investment & Wealth Institute® member, and author of the International Best Selling Book Planning with Purpose: Solving Your Unique Retirement Puzzle.
Jason Glisczynski is co-owner and principal advisor for Silvertree, LLC. Investment Advisory Services are offered through Brookstone Capital Management (BCM) LLC, a Registered Investment Advisor. Silvertree, LLC and BCM are separate companies.