Tax planning does not always require a complicated strategy. In many cases, relatively small decisions made throughout the year can improve your tax position, strengthen your finances, and create meaningful benefits when repeated over time.
Here are several areas worth reviewing as part of your annual tax planning.
Review Your Tax Withholding
Receiving a large tax refund can feel like a positive outcome, but it may also mean you had more withheld from your paychecks than necessary throughout the year. Reviewing your withholding can help better align the taxes you pay with your actual tax liability.
Even a $50 monthly adjustment could put an additional $600 into your take home pay each year, or $3,000 over five years.
Consider Increasing Retirement Contributions
Increasing contributions to a traditional retirement account can serve two purposes: building additional savings for the future while potentially reducing your taxable income today.
An additional $100 per month would add $6,000 to your retirement savings over five years, even before considering potential investment growth.
Make the Most of an HSA or FSA
Health Savings Accounts and Flexible Spending Accounts can provide valuable tax advantages when paying eligible medical expenses.
If you are eligible for an HSA, unused funds can generally remain in the account for future qualified medical expenses. FSAs can also provide tax benefits, although different rules apply to unused balances.
Setting aside $150 per month would direct $9,000 toward eligible medical expenses over five years using pretax dollars.
Build Education Savings With a 529 Plan
For families planning for future education expenses, a 529 plan can provide tax advantaged growth and tax free withdrawals when funds are used for qualifying expenses. Depending on where you live, contributions may also provide state tax benefits.
Contributing $100 each month would result in $6,000 of additional education savings over five years before potential investment growth.
Incorporate Charitable Giving Into Your Tax Planning
If charitable giving is already part of your financial plan, understanding the tax treatment of those contributions can help you make more informed decisions about when and how you give.
Beginning in 2026, eligible taxpayers who take the standard deduction may be able to deduct a limited amount of qualifying cash charitable contributions, creating another reason to consider charitable giving as part of an overall tax strategy.
Don’t Overlook Available Tax Credits
Unlike deductions, tax credits generally reduce your tax liability dollar for dollar. Depending on your circumstances, credits related to children, dependent care, education, and other qualifying expenses could provide meaningful savings.
Because eligibility can change from year to year, reviewing available credits should be part of the annual tax planning process.
Revisit Your Tax Strategy When Life Changes
Marriage, the birth of a child, college, a career change, retirement, or other major life events can significantly affect your tax situation.
Rather than waiting until your return is being prepared to discover the impact, reviewing these changes during the year provides an opportunity to adjust withholding, evaluate credits, and make other tax planning decisions while there is still time to act.
Make Tax Planning an Ongoing Conversation
The value of tax planning often comes from consistently paying attention to the details. A relatively small adjustment today may not seem significant on its own, but repeated over several years, these decisions can have a meaningful impact.
At Somich & Associates, we believe tax planning should be proactive. Our team works with individuals and families to understand their financial situation, identify potential opportunities, and make informed decisions throughout the year.
Contact our team to discuss how proactive tax planning can help you prepare, protect, and propel your financial future.