Top Tax Planning Strategies For After You File

Filing your tax return is just the start. The real value comes from using it to guide smart planning decisions all year long.

Send Us Your Completed Return

Once the tax deadline passes, it’s easy for your taxes to stray out of sight and out of mind, but we can actually learn a lot from reviewing your completed returns. A thorough analysis allows for a second set of eyes to ensure no one missed anything in the filing process and that no mistakes were made. Don’t worry; if there is an error, you can file an amended return and sort everything out. In addition to basic housekeeping, examining your return opens the potential for future tax planning opportunities. At The Dala Group, we ask that clients upload their final (and completed) tax returns into our secure document vault so that we can analyze the returns for them. What tax planning opportunities might we find throughout the process? Here are some to keep in mind. 

Max Out Your Retirement Plan Accounts

Each year, the IRS sets contribution limits for employer-sponsored retirement plans like a 401(k). If you’re not already contributing the maximum, consider increasing your contribution percentage to take fuller advantage of these tax-advantaged accounts. Already maxing out your employer-sponsored plan? Fantastic! Here are some next steps to consider.

After-Tax 401(k) Contributions

Many 401(k) plans allow employees to contribute after-tax dollars above the standard contribution limit. While these extra contributions won’t lower your taxable income, they provide an opportunity to put away significantly more money into a tax-advantaged retirement account. This can be an excellent option for high earners with excess cash flow who are already maxing out primary saving areas. In some cases, it also opens the door to the Mega Backdoor Roth Conversion strategy. More on this strategy is below!

Make The Most of Your Roth Accounts

When thinking about the tax-free portion of your retirement savings, it’s worth exploring all of your Roth options. Consider the following:

• Does a Roth Conversion make sense for you?

• Is it worth saving more into your 401(k) via pre-tax contributions or Roth contributions?

• If your 401(k) plan allows for after-tax contributions, is it sensible to take advantage of Mega Backdoor Roth Conversions?

Keep Your Investments Tax-Efficient

Ensuring the tax efficiency of your investments is critical to controlling how much tax you pay each year. Two long-term strategies to help are,

• Asset location

• Long-term capital gains

Asset location is the strategy of placing investments in the right accounts to make the most of their tax treatment. For example, you might keep dividend-paying stocks in a 401(k) or IRA so you don’t get taxed on those dividends each year. In a taxable brokerage account, however, those dividends are taxed annually. On the other hand, taxable accounts are better for investments you plan to hold long-term, since gains on assets held for more than a year are taxed at the generally lower long-term capital gains rate. Making smart choices about where you hold investments can help reduce your overall tax bill.

Create a Plan for Your Equity Compensation

Equity compensation can get complicated quickly. However, the best approach is to understand exactly what you have and then create a plan that makes sense for your goals, tax situation, and holistic portfolio. Below are the key questions to ask yourself as you plan for your equity fcompensation:

• Will any shares vest soon?

• Do you want to exercise?

• How will you fund the event?

• How can you make the most of your equity this year?

• How are you considering your equity compensation within your diversified portfolio?

If you’re looking for more equity compensation insights, we wrote an entire series dedicated to the most common forms you’ll come across, like ISOs, RSUs, and ESPPs. These articles would be a great start as you consider your annual equity comp planning.

Make A Charitable Giving Plan

When it comes to giving, it should always come from a place of serving others, helping worthy causes, and making the world a better place. What’s great about charitable giving is that you can do all of these things and save a little money on taxes. If you already donate to charity, be sure you

1. Have an annual plan

2. Consider your long-term giving strategy.

There are many ways to give, such as sending a check directly to a charitable organization, donating appreciated stock, or utilizing a Donor-Advised Fund (DAF). No matter what you choose, try to do so in the most tax-efficient manner, given your situation. For example, if you are retired and taking your RMD (Required Minimum Distribution), it may be advantageous to consider a Qualified Charitable Distribution (or QCD). A QCD allows you to avoid paying taxes on your RMD while also giving to a charitable organization. This could be an excellent option for a retiree already charitably inclined and does not need all of their RMD for regular income needs.

Ensure That Your Financial Professionals Know Each Other

You want your financial plan to have a cohesive strategy, which means that every area of your plan should work together. To help foster a sense of unity and clarity regarding your plan, be sure your financial planner and tax professional are in sync. By creating introductions in person, over the phone, or simply via email, you open a line of communication, allowing for more coordination that ultimately aligns with your best interests. When everyone can work together, you and your money benefit.

We Can Help

Just because you’ve filed your taxes doesn’t mean that conversations about tax planning stop. By thinking strategically year-round, you can get ahead of a higher tax bill come the next filing season. We help our clients consider the big picture regarding proactive tax planning—all within the context of comprehensive financial planning. Ready to learn more? Reach out today.