Tax planning is not just about reducing your taxable income to save more money, it’s also about creating a harmonious relationship with your finances. Whether you’re an individual taxpayer or a self-employed taxpayer, the way you approach your finances matters deeply. Without understanding your financial behaviors, goals, desires, and long-term objectives, even the best tax planning strategies may fail.
The tax planning process can be a bit of a mystery for the average taxpayer. Maybe you’ve heard colleagues, friends, or family talk about reducing their income taxes by using a tax advisor, but you’re not really sure what they did.
We plan to demystify the whole approach to tax planning strategies and lay it out for you to consider. Let’s begin by explaining what it is.
What is tax planning?
In its simplest form, tax planning is the process of looking at what you’ve done in the past with your money and taxes, what you’re thinking about doing in the present, and what you hope to be doing in the future. This is with the end goal in mind of paying less taxes if possible, without breaking any tax laws.
We’ll break this down even further:
Past: A thorough examination of your past tax returns to understand whether you made use of deductions, tax credits, qualified medical expenses, capital gains, and retirement funds. Examining your past tax bill helps the financial advisor understand where you’ve missed out on opportunities.
Present: A discussion around your current financial behaviors such as spending, saving, and investing. This will provide information about your current tax bracket, adjusted gross income, financial well-being, and how you can reduce your tax burden in the short-term.
Future: A look at how you can better use tax-exempt accounts, retirement accounts, health savings accounts, and a traditional IRA (amongst others) to cut down your tax liability in the medium- and long-term (12-18 months).
Who is tax planning for?
The tax planning strategies being discussed here are applicable to the following taxpayers:
Individual taxpayers (W-2)
Self-employed individuals (including sole proprietors)
High-income earners stand to benefit the most from proactive tax planning strategies for tax relief because they have the financial complexity and opportunities that can be leveraged to reduce their overall tax liability. If you fall into this category, you should seriously consider pursuing tax planning services to secure your wealth and channel it into things you care deeply about.
4-Step tax planning process
The tax planning process tends to be very systematic in nature (as one might expect from your accountant). Initially, the accountant will schedule a consultation with you to discuss your needs and ideas. The purpose of this meeting is to determine whether you’re a good fit. If the accountant can help you, you can progress to the next step, which is to gather historical tax returns and financial information.
1. Gather historical information and tax returns
Going through this process means you will need to be honest and open with a CPA or tax professional, providing them with all the documentation they ask for and answering their questions.
The thought of a complete stranger evaluating whether you know what you’re doing with your finances can sometimes deter taxpayers from participating in this beneficial process. The only comfort we can offer is that CPAs are like doctors - they’ve seen everything, and there’s no judgment.
This step is very important, but it is labor-intensive for both you and your accountant. The more information and documentation that can be gathered, the better.
2. Discuss tax planning ideas and strategies
Once the accountant has their arms around your financial situation and your financial goals for the future, they will present you with a list of tax strategies that will help you reduce your tax bill and also grow your wealth.
Listen carefully to their proposals and ask as many questions as you need to understand the implications of each strategy, both in the short term and beyond. Tax professionals and CPAs are experts in tax law and dealing with the IRS, so their contribution can be invaluable, but they should also fully empower you to make these decisions by educating you on all your options. Once you’ve agreed on strategies, an implementation plan is put together.
3. Implementation
After agreeing on strategies, it’s time to put them into action. This can involve making contributions to traditional IRAs, Roth IRAs, 401(k), charitable donations, and fully utilizing tax deductions.
There are two important meetings you should have with your accountant to track implementation and make tweaks where necessary.
June/July meeting - To review the progress of your implementation plan and make small tweaks. Initially, you may decide not to participate in one of the strategies suggested by your accountant but then change your viewpoint. This is the time to incorporate those changes.
November/December meeting - To review the final financial figures and make last-minute tweaks before the preparation of your tax return.
4. Approval and submission of tax return
Finally, after implementing the tax reduction strategies, you will see the benefit in cold, hard numbers. Ultimately, it is your responsibility to check all information that will be submitted by your accountant or tax preparer. For this reason, you should inform your accountant of any changes that have happened during the tax year that might affect the outcome of the return. This includes a change in filing status, unemployment, and an increase or decrease in income.
Tax strategy framework
A successful tax planning strategy will usually incorporate what we call the four Ds. This is a framework for investigating all possible strategies that can lead to a tax benefit.
The four Ds of tax planning strategies
Deduct
Itemized deductions directly reduce your taxable income, but your savings will depend on your tax bracket. These deductions are reported on Schedule A of Form 1040. Allowable deductions also depend on your tax filing status, but mortgage interest, charitable contributions, and self-employed business expenses are just some examples.
Defer
Deferring income allows you to postpone paying taxes, often until you are in a lower tax bracket. Examples of deferment are utilizing contributions to retirement accounts, a Roth IRA, or using a 301 exchange to defer capital gains.
Deflect
Deflection is about reducing your tax liability through the use of incentives and credits, such as education and child tax credits, and tax-loss harvesting.
Diminute
The lesser-known D involves actively working to reduce the size of your wealth and estate over time with gifting strategies, and estate planning. This involves the use of complex tax planning strategies that are the bread-and-butter of CPA accounting firms, and wealth management firms.
Tax strategies for 2025
With more than $4 trillion in tax increases scheduled to take effect at the end of 2025, the coming year could be as important for tax legislation as the Tax Cuts and Jobs Act (TCJA) of 2017. Lawmakers are set to face numerous challenges (such as the massive price tag) in extending the 2017 tax cuts, and will most likely seek other avenues to offset these costs.
Some of the changes scheduled for January 2026 will impact individual taxpayers, providing the incentive for individuals to make the most of tax cuts in 2025 while they are still in effect. The most notable are:
Individual marginal tax rates will return to pre-TCJA rate structure - replacing today’s top rate of 37 percent, with 39.6 percent.
The TCJAs temporary increase in the lifetime gift and estate tax redemption will be reduced from $10 million to $5 million.
The 20% deduction for an individual’s domestic qualified business income from an S-corp, or sole proprietorship will expire.
The current $10,000 limitation on the deductibility of state and local taxes will expire.
The adjusted gross income limitation for certain charitable contributions will be reduced to 50%.
With this in mind, we recommend that you consider the following strategies with the help of your tax advisor for 2025:
Correct filing status
The decision to file separately even when you are married can be detrimental and should be carefully weighed. For instance, you may not be able to claim benefits such as credits for the care of the elderly and disabled, child care credit, and earned income credit. You cannot take a deduction on student loan interest, and your ability to contribute to a Roth IRA may be limited.
Alternative minimum tax (AMT)
The AMT is a separate and parallel tax system introduced for taxpayers who would otherwise pay little or no taxes due to the use of certain deductions. If you’re paying AMT as a result of exclusion preferences, you should consider whether it is advantageous to accelerate income or defer deductions in the current tax year.
Capital gains and losses
Analyze your current capital gains and losses carry-forwards to ensure you are utilizing them to the fullest extent. Consider selling assets in taxable accounts that have losses at the end of the year to offset capital gains and potentially offset $3,000 of ordinary income.
Charitable contributions
Contributions to public organizations have a higher deductibility limitation than contributions to private foundations. However, the organization must appear in the Tax Exempt Organization Search database to qualify. Currently, the more favorable public charity deduction limitations apply to contributions of cash and appreciated property to donor-based funds.
Retirement planning
There are a number of approaches to retirement planning that can reduce your tax liability. Some individuals make the maximum non-deductible contribution to a traditional IRA and then convert it to a Roth IRA the next day. In this case, there is technically no income to include, and therefore it becomes a tax-free transfer.
Make the maximum contributions to your 401 (k). For contributions. For contributions made with pre-tax dollars, you save taxes now and accumulate tax-deferred retirement savings. If you’re self-employed without any employees, consider establishing one person 401 (k). Under this plan, you can make elective contributions of up to $23,500 and make a profit-sharing contribution.
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These, and other tax planning strategies, require tax law expertise and experience to implement. The team at Hall Accounting Company are ready to steer you in the right direction and help you reduce your tax liability. Call us today.
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Final Thoughts
The tax planning process is a structured and systematic deep-dive into your personal finances, tax returns, current tax reduction strategies, and future expectations. It requires the expertise of a tax professional or CPA familiar with a wide range of applications for tax regulations, as well as your commitment to an implementation plan for maximum benefits to be gained from the process.
At the end of 2025, a number of tax cuts are set to expire as lawmakers look for avenues to recoup the significant income losses the federal government faced from 2017 until now. This increases the urgency for good tax planning strategies, especially for high-income earners and businesses. With the help of a qualified CPA, you can secure certain exemptions for the future, and buffer your wealth from changes to tax legislation.
If you want to discuss these and other tax planning strategies, make an appointment today while the tax breaks in the Tax Cuts and Jobs Act are still available.