How to Prepare for Tax Season: Early Moves to Make This Year

January 29, 2025

Early Steps to Simplify Filing and Align Your Tax Strategy

Tax season just began January 27th, but starting early can help streamline the process and reduce stress when deadlines approach. By organizing your financial information and planning ahead, you can identify opportunities to align your tax strategy with your overall financial goals. In this article, we’ll discuss tax season preparation and share some early moves to consider as you prepare for tax season this year.

1. Organize Your Financial Documents

Gathering your financial documents early can help you avoid last-minute scrambling. Essential documents may include:

• W-2s or 1099 forms to report income.
• Statements for investment accounts, retirement plans, and health savings accounts.
• Records of charitable donations or deductible expenses.
• Receipts for major purchases that may qualify for tax deductions or credits.

If you’ve made changes to your financial situation this year—such as selling a property, starting a new job, or adjusting your investment portfolio—make sure to collect the necessary documentation to reflect those changes.

2. Review Your Withholding and Estimated Tax Payments

It’s a good idea to review your tax withholding or estimated tax payments well before the end of the year. If you’ve experienced significant life changes, such as a marriage, divorce, or the birth of a child, these events could affect your tax liability. Adjusting your withholding now can help you avoid overpaying or underpaying taxes.

For those who pay estimated taxes, check whether your payments are on track to meet your expected liability. This can help you avoid potential penalties for underpayment.

3. Evaluate Contributions to Tax-Advantaged Accounts

Tax-advantaged accounts, such as 401(k)s, IRAs, and health savings accounts (HSAs), offer potential benefits when it comes to tax planning. As the year progresses, consider whether you are on track to meet your contribution goals for these accounts:

• 401(k) and IRA Contributions: Contributions to traditional accounts may reduce taxable income, while Roth accounts provide potential for tax-free growth.
• HSA Contributions: If you’re eligible, contributing to an HSA can provide tax benefits for qualified medical expenses.

By contributing as much as possible before deadlines, you can align your retirement and healthcare savings goals with tax planning strategies.

Related: 2025 Key Financial Data and Reference Guides

4. Track Potential Deductions and Credits

Deductions and credits can play a significant role in your tax liability, so it’s helpful to track eligible expenses throughout the year. Common areas to review include:

• Charitable donations, including cash contributions and donated goods.
• Medical expenses, if they exceed a certain percentage of your income.
• Education-related expenses, such as tuition payments or student loan interest.

Keep detailed records and receipts to substantiate these claims when filing your return.

5. Consider Tax-Loss Harvesting

If you’ve experienced losses in your investment portfolio, tax-loss harvesting may help offset gains in other areas. By selling certain investments at a loss, you can potentially reduce taxable income while rebalancing your portfolio.

This approach requires careful planning to avoid wash sale rules, which could disqualify the tax benefits. Consulting with a financial professional can help ensure the process aligns with your overall investment and tax strategies.

6. Understand Changes to Tax Laws

Tax laws can change from year to year, so part of tax season preparation is staying informed about updates. For example, new legislation may affect contribution limits, tax brackets, or deductions and credits.

This year, be aware of any updates stemming from the SECURE Act 2.0, which introduced changes to retirement account rules, or other legislation that could impact your tax strategy.

7. Review Your Business Finances (If Applicable)

For small business owners or self-employed individuals, tax planning involves additional considerations. Some steps to take include:

• Reviewing eligible business deductions, such as home office expenses or equipment purchases.
• Ensuring proper record-keeping for income and expenses.
• Evaluating whether quarterly estimated tax payments align with your earnings.

Working with a tax professional can help you identify opportunities specific to your business structure.

8. Plan for Required Minimum Distributions (RMDs)

If you’re required to take RMDs from tax-deferred accounts, make sure to incorporate them into your tax strategy. The timing and amount of these distributions can affect your taxable income, so it’s important to plan accordingly.

Recent updates to RMD rules, including changes to the starting age, may also influence how you approach these withdrawals.

9. Check Your Tax Filing Status

Your tax filing status can significantly impact your tax liability. If your circumstances have changed—such as getting married or separated—it’s essential to understand how these changes affect your filing options during tax season preparation. Choosing the most appropriate status for your situation can help ensure accurate reporting.

10. Schedule Time with a Financial Professional

Tax planning is a year-round effort, and working with a financial professional can help you navigate the complexities of the tax code while aligning your strategy with your financial goals. They can provide personalized guidance on topics like deductions, credits, and tax-advantaged savings.

By starting early and addressing these areas proactively, you can approach tax season with greater clarity and confidence. Taking small, strategic steps now can make a big difference when it’s time to file.

Tax Season Preparation: Are You Planning Ahead?

Tax season preparation doesn’t have to be overwhelming. By organizing your financial documents, evaluating your tax strategy, and staying informed about potential changes, you can create a more efficient and informed approach to managing your taxes. Begin today to work towards a process that is more in line with your overall financial objectives.

Illuminated Advisors is the original creator of the content shared herein. I have been granted a license in perpetuity to publish this article on my website’s blog and share its contents on social media platforms. I have no right to distribute the articles, or any other content provided to me, or my Firm, by Illuminated Advisors in a printed or otherwise non-digital format. I am not permitted to use the content provided to me or my firm by Illuminated Advisors in videos, audio publications, or in books of any kind.

Tax-Efficient Wealth Building: Strategies to Maximize Your Returns

August 2, 2023

Tips to Keep More of Your Hard-Earned Money Working for You

When it comes to preparing for a financially secure future, utilizing tax-efficient wealth building strategies can help you make the most of your assets. In fact, one often overlooked aspect of wealth building is the impact of taxes on investment returns. Implementing tax-efficient strategies can help you minimize tax liabilities and keep more of your hard-earned money working for you. In this article, we will explore various strategies that can optimize your investment returns and help you on your journey to tax-efficient wealth building.

Understand Tax-Advantaged Accounts

One of the foundational strategies for tax-efficient wealth building is leveraging tax-advantaged accounts. Familiarize yourself with options such as Individual Retirement Accounts (IRAs), 401(k) plans, Health Savings Accounts (HSAs), and 529 education savings plans. These accounts offer tax advantages, such as tax-deferred growth or tax-free withdrawals, allowing your investments to grow more efficiently.

Capitalize on Tax-Deferred Investments

Investing in tax-deferred vehicles can have a significant impact on your long-term wealth accumulation. Explore options like traditional IRAs, 401(k) plans, and deferred annuities. By deferring taxes on investment gains until withdrawal, you can potentially benefit from compounding growth and keep more of your returns working for you.

Utilize Tax-Efficient Asset Location

Strategic asset location involves placing different types of investments in the most appropriate accounts to optimize tax efficiency. For example, high-growth assets that generate significant capital gains may be best held in tax-advantaged accounts to defer taxes, while tax-efficient investments like index funds or tax-managed funds can be placed in taxable brokerage accounts. If you’re unsure about the tax treatments of different types of accounts, work with a financial advisor or tax professional to determine the most tax-efficient wealth-building strategies for your personal circumstances.

Harvest Tax Losses

Tax-loss harvesting involves strategically selling investments that have experienced losses to offset taxable gains. By realizing losses, you can reduce your tax liability while maintaining a similar investment position by reinvesting in similar assets. Careful consideration of tax rules and restrictions is crucial to ensure compliance and maximize the benefits of tax-efficient wealth building strategies like this one.

Long-Term Investing for Capital Gains

Holding investments for the long term can have substantial tax advantages. Capital gains from investments held for more than one year are subject to lower long-term capital gains tax rates. By adopting a long-term investment strategy, you can take advantage of these preferential tax rates and enhance after-tax returns.

Consider Tax-Efficient Investment Vehicles

Certain investment vehicles, such as exchange-traded funds (ETFs) or index funds, are designed to be tax-efficient. These funds aim to minimize taxable distributions by minimizing portfolio turnover or using in-kind transfers. Exploring these options can help you reduce taxable events and improve overall tax efficiency.

Charitable Giving

Charitable giving may strike you as an odd addition to a list of tax-efficient wealth building strategies, but these types of contributions offer potential tax benefits while supporting causes you care about. Consider donating appreciated securities directly to charitable organizations instead of cash. By doing so, you can potentially avoid capital gains taxes and still claim a deduction for the fair market value of the donated assets.

Related Article: Five Charitable Gifting Strategies That Come With Tax Advantages

Seek Professional Guidance

Navigating the complexities of tax-efficient wealth building can be challenging, and some of the above strategies may leave you feeling confused or overwhelmed if you try to go it alone. Consider working with a knowledgeable financial advisor or tax professional who can provide personalized guidance based on your unique financial situation. They can help you identify and implement the most effective tax strategies and ensure compliance with tax laws.

Are You Utilizing Tax-Efficient Wealth Building Strategies?

Building wealth requires a comprehensive approach that includes optimizing your investment returns while minimizing tax liabilities. By implementing tax-efficient wealth building strategies such as leveraging tax-advantaged accounts, capitalizing on tax-deferred investments, and utilizing strategic asset location, you can enhance your after-tax returns and accelerate your wealth-building journey. By making tax efficiency a priority, you can keep more of your wealth working for you and achieve greater long-term financial success.

If you’d like to discuss strategies for tax-efficient wealth building, contact Lane Hipple Wealth Management Group at our Moorestown, NJ office by calling 856-638-1855, emailing info@lanehipple.com, or to schedule a complimentary discovery call, use this link to find a convenient time.

Illuminated Advisors is the original creator of the content shared herein. I have been granted a license in perpetuity to publish this article on my website’s blog and share its contents on social media platforms. I have no right to distribute the articles, or any other content provided to me, or my Firm, by Illuminated Advisors in a printed or otherwise non-digital format. I am not permitted to use the content provided to me or my firm by Illuminated Advisors in videos, audio publications, or in books of any kind.

Five Charitable Giving Strategies that Come with Tax Advantages

September 2, 2022

Enjoy the Financial Benefits of Your Philanthropic Efforts

Charitable giving tax advantages are probably not the first thing on your mind when you decide to make a philanthropic gift. After all, deciding to give to an organization or cause that you care about is a personal decision reflective of your values, passions, and hopes for the future. Your philanthropy helps those in need, and maybe even satisfies something deep in your soul. However, those are not the only benefits. When you use the right charitable giving strategies, you can also minimize your tax burden. Below, we’ll discuss five such strategies to help you maximize the positive benefits of your giving.

1.    Whenever possible, itemize.

In 2017, Congress passed the Tax Cuts and Jobs Act (TCJA), which almost doubled the standard deduction you’re allowed to take on your taxes due to charitable giving. Now, you can deduct cash gifts you make throughout the year, up to 60% of your adjusted gross income. Despite this increase, or perhaps because of it, less than 10% of taxpayers are itemizing their deductions now. If you’re among the majority failing to itemize your deductions, you may be missing out on some of the advantageous tax benefits that your philanthropy makes possible.

While itemizing your charitable giving can be a smart tax strategy, it’s not necessarily the right move for everyone. To determine if itemizing is right for you, you’ll want to first add up the total of your allowable deductions. This should include deductions such as any mortgage interest and property, state, and local income tax. You’ll then want to consider what the standard deduction for that tax year is. (See 2022 standard deductions here.) If your total amount of deductions are greater than the standard deduction, then itemizing is likely the right move for you.

2.    Bunch your gifts.

If you’re committed to giving back on an annual basis, one of the charitable giving tax advantages you may benefit from is bunching your donations. Bunching is when you prefund your charitable gifts into one tax year rather than spreading them out among multiple years. This is typically done by donating appreciated securities or by putting your gifts into a donor-advised fund (more on this below). By doing so, you’re able to make your itemized deductions exceed the standard deduction threshold, and ultimately, minimize your tax bill for the current year.

3.    Think “out of the box” with your charitable giving.

While giving cash is great, there are ways that you can give to charities you love outside of simply writing them a check. A great way to give back while also being tax-savvy is to give stocks, bonds, or other appreciated securities directly to the charity. By gifting an appreciated stock directly, rather than selling it for a profit, both you and the charity will be able to avoid capital gains tax on the appreciation. What’s more? You may be eligible to receive a tax deduction equal to the fair market value of the shares you donate. So, you’ll be able to maximize your impact while also enjoying significant tax advantages.

4.    Create a donor-advised fund.

Establishing a donor-advised fund (DAF) is another tax-savvy way to give back – and not just where bunching gifts is concerned, as mentioned above. DAFs are personal charitable investment accounts that you can fund with assets such as cash, stocks, or bonds. With a DAF, you get to strategize how you want your gifted (but not yet granted) dollars to be invested, and from there you can recommend when you wish for the money to be given to any qualified charitable organization you choose, on a timetable that works with your financial plans. As your money sits in a DAF, the funds are invested and, therefore, growing tax-free, which may allow you to give even more money to causes you’re passionate about.

Related Article: Financial Goal-Setting Tips to Help Achieve Your Money Goals

5.    Gift your Required Minimum Distribution.

At the age of 72, you’re required to begin taking Required Minimum Distributions (RMDs) from your retirement accounts, whether you need the additional income or not. Typically, when this is done, you are then required to pay income tax on these distributions. However, if you gift your distribution to a charity instead, the IRS allows the distribution to remain tax-free. So, if you don’t need your RMD to support your lifestyle, you may want to consider donating some or all of it to a qualified non-profit instead.

Gifting your RMD should be considered as one of your charitable giving strategies when possible because it allows you to accomplish four things: satisfying your RMD requirement, supporting a charity that you care about, avoiding having to pay the taxes that come with your distribution, and mitigating the risk that your distribution may have pushed you into a higher tax bracket.

Are You Maximizing Your Charitable Giving Tax Deductions?

Philanthropy is a meaningful way to enrich lives – both your own and those that are impacted by the charities you choose to support. Giving back not only helps to immediately address critical needs in your local community and across the globe, but it creates ripple effects for the future, too. By giving yourself, you can inspire those around you to take up philanthropy and make a difference, too. While there’s no “one size fits all” charitable giving strategy to accomplish this, there are a plethora of ways that you can choose to give back while also personally benefitting from charitable giving tax advantages.

If seeking to create impact beyond yourself is a priority for you, contact Lane Hipple Wealth Management Group at our Moorestown, NJ office by calling 856-638-1855, emailing info@lanehipple.com, or to schedule a complimentary discovery call, use this link to find a convenient time.

Illuminated Advisors is the original creator of the content shared herein. We have been granted a license in perpetuity to publish this article on our website’s blog and share its contents on social media platforms. We have no right to distribute the articles, or any other content provided to our Firm, by Illuminated Advisors in a printed or otherwise non-digital format. We are not permitted to use the content provided to us or my firm by Illuminated Advisors in videos, audio publications, or in books of any kind.