Every tax season, we see the same situation play out: someone files their return and is surprised by what they owe or by how large their refund is. While taxes often feel like a once-a-year event, the reality is that the best outcomes come from planning throughout the year.
Taking a proactive approach can help you avoid surprises and make better financial decisions, whether you’re an employee, business owner, or retiree. Here are a few simple habits that can make a big difference:
Employees: Check Your Withholdings
If you’re a W-2 employee, one of the easiest things you can do is review your pay stub early in the year. Take a look at how much federal and state tax is being withheld and estimate what that will look like across all your pay periods. Then compare it to what you paid in taxes last year.
If something looks off, it’s worth adjusting your withholding now rather than discovering the issue next April. A slightly larger paycheck might feel nice in the moment—but sometimes it simply means less tax is being withheld.
Business Owners: Stay on Top of Your Numbers
For business owners, proactive planning usually starts with good financial tracking.
Waiting until year-end to organize income and expenses makes it difficult to estimate your tax obligations. We recommend reviewing your financials quarterly, as it gives you a clearer view of profits and helps you plan for estimated tax payments.
It also helps you stay within the IRS “safe harbor” guidelines, which generally require paying either 90% of your current year tax or 110% of last year’s tax to avoid penalties. Talk to our wealth advisors to determine which steps are right for you.
The goal is to strike the right balance, pay enough to avoid penalties without sending the IRS more than necessary.
Retirees: Understand Your Withholding
Retirement income can come from multiple sources—Social Security, pensions, and IRA withdrawals—and each one handles taxes differently.
For example, Social Security doesn’t automatically withhold taxes unless you request it. Pensions and IRA withdrawals may also default to withholding amounts that aren’t sufficient for your full tax liability.
Taking time to estimate your total income for the year can help you determine whether adjustments or estimated tax payments are needed.
Opportunities That May Still Be Available
Even after the calendar year ends, there may still be ways to improve your tax situation. Depending on your circumstances, you may still be able to contribute to an IRA or HSA before the filing deadline. Business owners may also have additional retirement contribution options available.
Real estate investors, for example, may explore strategies such as cost segregation studies to potentially accelerate depreciation.
The Bottom Line
Taxes shouldn’t only be a conversation once a year. Small check-ins throughout the year—reviewing income, withholding, and financial records—can help you avoid surprises and make more informed decisions.
Keeping track of W-2s, 1099s, investment statements, and deduction-related records throughout the year helps ensure nothing gets missed. It also gives your tax professional more time to review your return thoroughly and identify potential opportunities.
A proactive approach to tax planning isn’t just about reducing taxes—it’s about building a financial strategy that works year-round.
If you’d like help taking a more proactive approach, contact our team to start the conversation.
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