With the dawning of a new year, we often hear clients and other friends giving us encouragement about getting through the upcoming tax season. We appreciate the sympathy, to be sure, as we address a broad set of complex tasks under a looming deadline.
Still, as important as April 15 is—actually April 18 in 2017—what most people refer to as tax season is really better called tax-filing season. And yes, we help our clients to provide a once-a-year accounting to government entitites, so they'll get back what they're entitled to—or will know how much to pay.
But even though the IRS is not yet ready to receive electronically filed returns in early January, another equally important tax season is already here. It started as December turned to January and we embarked on a new calendar year (which is our tax year as well).
It’s not just what we do when we file our returns that determines our tax liability. Really, there’s very little most of us can do once the year is over to change how much we owe or get back from the US Treasury or the state (or, where applicable, the city or the school district).
So what does give us the greatest opportunity to see to it that we don’t pay more than we need to? It’s not tax return preparation, but tax planning. And you could say that income tax planning season starts as soon as the year does, and lasts just as long, too. (This is the case for individuals; some organizations follow a tax year that isn’t the same as a calendar year.)
That’s not to suggest we need to be thinking about taxes every single day. But over time, we can become attuned to those decisions that may affect our tax liability and make tax-conscious decisions about them. Examples include:
- keeping track of charitable, medical, or business mileage.
- deciding whether to donate to charity using cash, an IRA, or appreciated stock.
- understanding how much income tax you’ll save by contributing $1,000 per year more to your 401(k), 403(b), 457 plan, or the federal employees’ TSP.
If we can make more tax-conscious day-to-day decisions about our money, those choices can accumulate to a very substantial tax savings that you can evaluate in a tax planning overview. And that can result in a smaller bill or a larger check back each year when tax-filing season finally arrives.