For many people, taxes become a priority sometime between January and April.
But by the time tax season arrives, many of the financial decisions that can affect your return have already been made.
That is why fall can be one of the most valuable times of the year to review your tax situation.
Year-end tax planning gives individuals, families, and business owners an opportunity to organize records, review income and expenses, identify potential issues, and discuss available planning strategies before the calendar year comes to an end.
At ARP Tax Pro, we believe good tax preparation starts long before it is time to file the return.
Tax Preparation and Tax Planning Are Different
Tax preparation looks backward.
It involves gathering information from the year that has already ended and using it to prepare and file your tax return.
Tax planning looks forward.
It involves reviewing your current financial situation while there may still be time to make informed decisions before year-end.
Both are important.
The advantage of planning earlier is that you may have more options available than you would after December 31.
Review What Has Changed This Year
A lot can happen in twelve months.
Changes in your personal or financial life can affect your tax situation.
Before the end of the year, consider whether you experienced any significant changes such as:
- Starting a new job
- Changing employers
- Receiving a raise or bonus
- Starting or closing a business
- Becoming self-employed
- Buying or selling property
- Getting married or divorced
- Welcoming a child
- Retiring
- Receiving investment income
- Selling investments
- Receiving inherited assets
- Making major charitable contributions
- Experiencing a significant change in income
These changes do not automatically mean you will owe more or less in taxes.
They simply mean your tax picture may look different than it did last year.
Small Business Owners Should Review Income and Expenses
For business owners, year-end planning can be especially important.
October is a good time to start reviewing your records instead of waiting until tax season to sort through an entire year’s worth of activity.
Take a look at:
- Business income
- Operating expenses
- Equipment purchases
- Vehicle-related records
- Contractor payments
- Payroll records
- Business mileage
- Estimated tax payments
- Receipts and documentation
- Retirement plan contributions
- Accounts receivable and payable
Good organization can make tax preparation much more efficient and can help reduce the risk of overlooking important information.
Check Your Estimated Tax Payments
Employees generally have taxes withheld from their paychecks.
Business owners, independent contractors, investors, and others with income that is not subject to regular withholding may need to make estimated tax payments.
If your income changed significantly during the year, the amount you have already paid may deserve another look.
A tax professional can help you review your current situation and determine whether additional planning may be appropriate before the year ends.
Review Your Retirement Contributions
Retirement planning and tax planning often overlap.
Depending on the type of retirement account and your individual circumstances, contributions may affect your current taxable income or provide other long-term tax considerations.
This is also a good time to review:
- Employer retirement plans
- Traditional IRAs
- Roth IRAs
- Self-employed retirement plans
- Beneficiary designations
- Required retirement account activity, when applicable
Contribution rules, income limits, deadlines, and tax treatment vary by account type and can change over time, so individual guidance is important.
Take a Look at Your Investments
If you own stocks, mutual funds, real estate, or other investments, transactions during the year may have tax consequences.
Selling an investment may create a capital gain or loss.
Investment income can also include dividends, interest, distributions, and other taxable activity.
Before making year-end investment decisions solely for tax purposes, it is important to consider the overall financial impact.
Taxes should be part of the discussion — not necessarily the only reason for making an investment decision.
Organize Your Charitable Contribution Records
If you made charitable contributions during the year, start organizing your documentation now.
Depending on the contribution and your tax situation, records may include:
- Receipts
- Written acknowledgments
- Donation confirmations
- Documentation for non-cash contributions
- Records of eligible charitable gifts
Tax rules regarding charitable deductions depend on several factors, including whether deductions are itemized and what type of property was donated.
Keeping accurate records makes the tax preparation process much easier.
Don’t Forget About Major Life Events
Taxes often change when life changes.
Marriage, divorce, retirement, a new child, the death of a spouse, a new business, or a major property transaction can all create questions that may not have applied to you before.
Waiting until your return is being prepared can limit the amount of planning that can still be done.
Discussing these events with a tax professional before year-end allows you to better understand how they may affect your upcoming return.
Get Your Documents Organized Early
One of the easiest ways to make tax season less stressful is to begin organizing now.
You can start a folder — physical or digital — for documents that will be needed later.
Depending on your situation, that might include:
- Income records
- Business expense records
- Mortgage information
- Investment documents
- Property transaction records
- Charitable contribution receipts
- Estimated tax payment confirmations
- Education-related records
- Retirement account information
- Prior-year tax documents
You may not have every tax form yet, but getting the supporting information organized now can save considerable time later.
Avoid the Last-Minute Tax Season Rush
Tax season can become hectic quickly.
Waiting until the last minute can mean trying to gather documents, remember expenses, locate receipts, and answer financial questions all at once.
A year-end tax review gives you an opportunity to identify missing information earlier and start the filing season better prepared.
More importantly, tax planning allows the conversation to focus on the bigger picture rather than simply entering numbers onto a return.
Tax Planning Should Be Personal
There is no one-size-fits-all year-end tax strategy.
A decision that makes sense for one taxpayer may not be appropriate for another.
Your planning should take into account factors such as:
- Income
- Family situation
- Business ownership
- Investments
- Retirement plans
- Property ownership
- Future financial goals
- Changes occurring during the year
That is why professional guidance can be so valuable.
Start Planning Before the Year Ends
You don’t have to wait for tax documents to start arriving in January.
October is a great time to review where you stand, identify questions, organize your records, and begin preparing for the upcoming tax season.
At ARP Tax Pro, we work with individuals, couples, and small businesses to provide professional tax preparation and tax planning services.
Schedule Your Year-End Tax Review
If your income, business, investments, retirement situation, or family circumstances changed this year, now is a good time to start the conversation.
Contact ARP Tax Pro today at (623) 889-3403 to discuss your tax preparation and year-end planning needs.
ARP Tax Pro
Professional Tax Preparation & Tax Planning Services
Because the best time to think about next year’s tax return may be before this year is over.