Beyond Tax Day: Mid-Year Tax Planning Opportunities
By Michele Hammann, CPA, PFS™, CVA, Regional Vice President, Partner, Merit Financial Advisors
Many investors think tax planning happens only once a year, but the reality is that mid-year check-ins are just as important. Without multiple touch bases with your accountant and financial advisor throughout the year, it can be easy to overlook things like quarterly payments or qualified charitable distributions, which can add up over time. Meeting with your advisor a few times during the year to update your projections and make last-minute changes before year-end can save you money and stress.
According to the Joint Committee on Taxation, 84 percent of the benefits from the three most common itemized deductions flow to taxpayers earning over $200,000 meaning the highest earners have the most to gain from proactive planning, and the most to lose from waiting until April. With that in mind, it’s important to remember that Tax Day is just the deadline, not the time to plan your strategy. Here are a few things to remember after this year’s tax deadline.
Share Your Tax Returns
Ideally, you’d know what you owe and set money aside throughout the year, so April 15 isn’t a surprise. Advisors prefer to talk with clients during the year, not just in April when options are limited. Sharing your tax returns with your advisor after you file is a great way to get started.
Your financial statements and investment documents only show part of your financial picture. When you add your tax return, your advisor gets the full picture. Tax professionals calculate what you owe, while advisors compare it to last year’s projections to spot differences and avoid surprises. For example, a higher income could mean higher Medicare costs next year, or you might have more capital gains than expected. Without all the information, advisors can’t give the best advice.
Embrace the Conversational Checklist
Conversations often lead to new ideas. Your advisor wants to understand your current life, cash flow, and expenses, and use that information to build a tax strategy that keeps your tax bracket as low as possible over the next few years. If we ask questions that might seem odd, bear with us. For example, I worked with a family whose adult children had graduated from college years ago. If I didn’t ask about school, I wouldn’t have learned that the wife had decided to earn an advanced degree, potentially missing out on education tax credits.
Tax laws change, too, like the One Big Beautiful Bill Act. As advisors, our job is to ensure we address all these updates in a way that matters to you, so indulge us with the details of your life.
Identify New Opportunities to Reduce Tax Liabilities
If you have several traditional or rollover IRAs, there may be an opportunity to use Roth conversions to take advantage of lower tax brackets. Doing this when the market is down can be a smart way to move money from taxable to non-taxable accounts, such as a Roth IRA.
Looking ahead is always useful. Strategies like charitable bunching making larger charitable gifts in certain years when your income is higher can be helpful, but they require planning two or three years in advance.
Multi-year tax projections can reveal where your assets might not be working efficiently. It’s important to have the right investments in each type of account, so you keep as much as possible after taxes.
The Secret Sauce for Business Owners
Mid-year tax planning for major life events, such as selling a business, bringing on partners or investing in equipment, is especially important as a business owner, given the complexities involved.
My new book, Go Public in Private, focuses on understanding the value drivers of your business and using proven techniques of publicly traded companies to help you reach financial independence. It’s a strategic blueprint that allows owners to shift from working in your business to working on it, and demand a return for all the risk that comes with signing the front of the paycheck instead of the back. If an advisor can help define your maximum value, it helps reframe the conversation in a softer way.
Make Mid-Year Work for You
Even though it’s not fun to talk about losses, mid-year is a good time to consider tax loss harvesting. This can help you adjust your investments in a tax-efficient way, especially when markets are changing.
You should also try to max out your Health Savings Account (HSA) contributions. HSAs offer a triple tax benefit: you get a deduction when you contribute, your money grows tax-free, and you can withdraw it tax-free for medical expenses. It’s better to plan ahead than to scramble for cash at the end of the year.
Reviewing your estimated tax payments mid-year is important. If you overpay, you lose out on interest you could have earned. If you underpay, you might owe interest and penalties. Adjusting these payments won’t always save you on taxes, but it can help you keep more money working for you and avoid extra costs.
If you’d like help connecting your tax returns to your financial performance, Merit Financial Advisors offers complimentary consultations to help bring clarity and structure to your financial life. Let’s start the conversation today.
Investment advice offered through Merit Financial Group, LLC, an SEC registered investment adviser.