Midyear tax planning allows you to reduce your tax burden when the next filing season arrives. Understanding the importance of tax planning is essential for individuals and businesses to take proactive measures toward reducing their tax burden and optimizing their financial situation ahead of the next filing season.

Midyear tax planning also provides an opportunity to discuss any significant life changes or financial events that may impact taxes with a trusted advisor. It helps individuals stay organized, make estimated tax payments, and make necessary adjustments to tax withholding. Overall, midyear tax planning empowers taxpayers to take control of their financial future, maximize their tax benefits, and achieve greater peace of mind.

Here are some steps you should take:

1. Begin with Your Goals:

Tax planning goes beyond assessing income and deductions. Start by evaluating your personal and financial objectives. Review your progress on short-term, mid-term, and long-term goals for 2024. Identify areas that require more attention and set new goals if necessary. Writing down and reassessing your goals will provide clarity and help your tax advisor understand how best to assist you.

2. Meet and Discuss:

Schedule a meeting with a trusted tax or financial advisor to discuss your goals. Seek their perspective on your current tax liability compared to the previous year. Inform them of any significant changes in your life or financial situation that could impact your taxes, such as selling a home, buying a car, starting or ending a business, changing jobs, or getting married. Sharing this information ensures that your advisor understands your situation and can tailor tax strategies accordingly.

3. Assess and Estimate:

Evaluate your taxable income and estimate your tax liability. Take stock of all sources of income; both earned and unearned. Knowing your potential tax burden midyear allows you to plan estimated tax payments and adjust your tax withholding if you receive a regular paycheck. If you’re self-employed, assess your business’s state and potential liabilities to make estimated tax payments if required.

4. Consider Required Minimum Distributions (RMDs):

If you’re an older adult or retiree, remember to account for RMDs. The SECURE Act 2.0, passed in 2024, introduced new rules, including a change in the starting age for RMDs to 73. Assess any penalties and review your Social Security income, as increases may affect your tax liability (up to 85% of benefits may be taxable).

5. Minimize and Maximize:

Consider the timing of certain expenses or income to reduce tax liability and take advantage of deductions, credits, and exemptions. If you expect to have capital gains or losses, multiple RMDs in a year, or more dividend income than you planned for, make sure to adjust your plans accordingly. Additionally, remember that charitable giving can be done throughout the year and may provide tax benefits if you itemize deductions.

6. Get and Stay Organized:

Reflect on the previous tax filing season and learn from any mistakes or dissatisfaction. If you weren’t satisfied with your preparer, search for a qualified tax professional now. Alternatively, if you’ve been handling your taxes yourself, explore different filing options or seek guidance from a trusted source the next time. Stay informed about changes and key amounts that could impact your tax liability for 2024. Keep track of inflation-adjusted amounts for tax credits and deductions you typically claim.

By implementing these midyear tax planning strategies, you can proactively manage your taxes, minimize your burden, and focus on living your best life.