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Why Year-Round Tax Planning Matters
Today at First Light Financial LLC, we’ll take a look at practical, year-round tax moves that can help lower your tax bill and ensure that you feel more confident going into the next tax season.
Once the holidays wind down, many of us turn our attention to one of life’s certainties: taxes. But while taxes can feel like a headache, the sooner you plan ahead for tax season, the less stressed you’ll be as the deadline arrives. Small moves during the year can make a big difference.
Hopefully you can incorporate some of these actionable solutions into future tax seasons to keep stress low and returns high for years to come! As always, a First Light Financial LLC advisor is ready and willing to help you through your taxes.
Don’t wait; visit our website to set up a consultation today.
Be Intentional with Charitable Giving
Giving to charity is not intended to be a selfish endeavor to get ahead on your taxes, but that doesn’t mean you can’t be intentional and smart with how you go about donating.
As Investopedia points out here, a new above-the-line deduction allows non-itemizers to deduct up to $1,000 ($2,000 if you’re married) in charitable gifts, as opposed to donations only being deductible if you itemized in past tax years. The Investopedia article is worth reading through to get a head start on deducting your charitable donations.
Donor-advised funds (DFAs) could also allow you to group multiple years’ worth of charitable donations into one bigger contribution to exceed itemization thresholds. Retired folks with traditional IRA accounts can also sometimes satisfy required minimum distributions with Qualified Charitable Distributions (QCDs). More on that below.
A First Light advisor is available to help you navigate the tricky world of charitable giving and tax planning. Click here to schedule an appointment.
How to Use Retirement Accounts to Your Advantage
401(k) and Traditional Roth IRA contributions, as well as contributions to other tax-advantaged accounts, reduce taxable income. It’s a real kill-two-birds-with-one-stone moment: not only are you saving for your future (more on that here!), but you’re actively saving yourself money on April 15.
As Fidelity points out in a helpful guide here, you can contribute up to $23,500 in combined traditional and Roth contributions, with additional catch-up contributions if you’re over a certain age.
Health Savings Accounts (HSAs) function in much the same way on the healthcare side of things, and you’re not forced to use funds or lose them like with some flexible savings account setups.
Traditional or Roth IRA?
If you’re unsure whether to make traditional or Roth IRA contributions, consider expected tax rates. If you expect higher tax rates in the future, you can take advantage of lower rates today by making Roth contributions so that your money grows tax-free for later withdrawals.
Required minimum distributions (RMDs) apply to traditional contributions, and while you have to use them by year end, you can reduce RMD tax consequences as Vision Retirement points out here by making qualified charitable contributions and Roth conversions, as well as considering taking more than the minimum distribution to reduce the size of future minimum distributions.
Plan for Retirement Taxes
Finally, think ahead about retirement taxes, such as how future withdrawals from your retirement accounts will be taxed once you start dipping into their funds, when Roth conversions might make sense, planning for required distributions, etc. Withdrawals during retirement – including Social Security and RMDs – could push you into a higher tax bracket if you do not time them properly, or make too large of withdrawals at once.
If you’re struggling to navigate retirement savings in a way that makes sense, a First Light advisor can help get you on the right track today.
How to Invest in a Tax-Smart Way
Everyone wants to hold the right investments in the right accounts all the time, but that’s not always realistic. The Morgan Franklin Foundation lists ideas here for last-minute tax strategies and financial moves that you may not have considered.
For example, you could sell losing investments to offset other gains in your portfolio and reduce taxable gains if those losing investments are short-term holds and not worth holding any longer.
On the flip side, long-term investments of a year or more are often lucrative in tax season since they can help you qualify for lower long-term capital gains rates.
Speaking of capital gains, consider donating some appreciated assets (investments that have increased in value over time such as real estate, stocks, or bonds) to charity to avoid additional capital gains taxes and earn a deduction for the full fair-market value if you itemize. Not only are you supporting a good cause, but you are making a smart financial decision come Tax Day.
If you need help setting up your portfolio or deciding when to buy and sell, a First Light advisor would be happy to take a look at your current investments and provide input on where you could improve.
Plan Ahead for Changes in Income
It can be uneasy to think about your income changing in the future, but it’s essential to plan ahead for when it does – in both directions. When you are planning out your taxes for the year, think about bonuses and commissions from work, or self-employment income either that you make on the side or that naturally fluctuates with business ownership.
Bigger changes like career shifts can come with growing or diminishing income and thinking them through can help you avoid unexpectedly large tax bills. You’ve probably heard folks joke casually about “moving up into a different tax bracket,” but this is a real phenomenon. Folks are often excited to start a new job only to end up owing a lot more on April 15 because their salary or hourly rates are now so much higher!
Consider adjusting your withholding or estimated tax payments if your income changes mid-year. You don’t want to get hit with an underpayment penalty because you forgot to account for earning changes.
Speak with a financial advisor today about planned career moves or positional transitions that could impact income brackets on your taxes. A tax pro can also help you anticipate future bonuses or commissions, and how those could affect your taxes.
Review Your Plan Now, Before Year-End
You don’t need to wait until year-end to review your plan for next year. Check your contributions to retirement or health savings accounts and think critically about how you plan to withdraw in retirement; harvest losses to balance your gains for tax impacts; finalize deductible charitable giving well before the deadline.
The longer you wait, the more limited your options. Regular tax check-ins, sometimes with professional guidance, are a tool in your belt for making tax season a breeze. If you’re reading this you are serious about a coordinated financial plan, and taxes are a part of that. It makes sense to coordinate your returns with the rest of what you are doing to create a healthy and diverse portfolio.
Tax planning works best when it’s proactive: take advantage of new laws and loopholes, and speak to a financial advisor today if you have questions or to take your planning to the next level.
Final Thoughts
Tax season, like many things in life, may seem overwhelming if you don’t go in prepared.
However, if you spend time throughout the year thinking through these issues in a meaningful way and making concrete, solid plans for how to get the most out of your returns, it might just feel like a breeze! Now’s the perfect time to start: it’s not too late to make meaningful changes, and it’s not too early that Tax Day 2026 feels like an abstract future event. If you need help along the way, First Light Financial LLC can connect you with an experienced, qualified, and empathetic advisor today to provide assistance. Thanks for reading, and we’ll see you next month!
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Advisors associated with First Light Financial Planning may be either (1) registered representatives with, and securities offered through LPL Financial, Member FINRA/SIPC, and investment advisor representatives of Great Valley Advisor Group; or (2) solely investment advisor representatives of Great Valley Advisor Group, and not affiliated with LPL Financial. Investment advice offered through Great Valley Advisor Group, a registered investment advisor. Great Valley Advisor Group and First Light Financial Planning are separate entities from LPL Financial.
Member FINRA/SIPC: www.finra.org/www.sipc.org
Kris Money is solely an investment advisor representative of Great Valley Advisor Group, and not affiliated with LPL Financial.