Tax planning isn’t something that should only happen when filing season rolls around. For high-net-worth individuals, a year-round approach to tax strategy can lead to better financial decisions, greater savings, and fewer surprises.
Whether you’re managing investments, handling business income, or planning your legacy, keeping taxes in mind throughout the year helps you stay in control and take advantage of available opportunities.
Why Year-Round Tax Planning Matters
Tax laws are constantly shifting, and wealthier individuals often have more complexities to consider, from multiple income streams to philanthropic giving. A proactive tax strategy helps you:
- Stay ahead of potential tax law changes
- Make informed investment decisions with tax implications in mind
- Minimize tax burdens legally and efficiently
- Plan charitable contributions for maximum impact
- Avoid last-minute stress and rushed decisions
Tax-Smart Investment Strategies
Investment decisions shouldn’t be made in isolation from tax considerations. Year-round tax planning allows you to align your portfolio with tax-efficient strategies, including:
- Tax-Loss Harvesting: Selling underperforming investments to offset gains elsewhere in your portfolio.
- Strategic Asset Allocation: Holding tax-efficient investments in taxable accounts and higher-tax investments in tax-advantaged accounts.
- Timing Capital Gains: Spreading out gains over multiple years to avoid unnecessary tax spikes.
- Making the Most of Tax-Advantaged Accounts: Allocate funds wisely to IRAs, 401(k)s, and health savings accounts (HSAs) to lower your taxable income and strengthen your long-term financial foundation.
With regular check-ins, you can adjust your investment approach as tax laws and market conditions evolve.
Smart Gifting and Charitable Contributions
Philanthropy is an important part of wealth management, and with careful planning, charitable giving can also help manage your tax obligations. Some strategies to consider include:
- Donor-Advised Funds (DAFs): Donate assets to a donor-advised fund (DAF) for an upfront tax deduction while allowing you to support charities at your own pace over time.
- Qualified Charitable Distributions (QCDs): If you’re 70½ or older, you can donate directly from your IRA to a charity, reducing taxable income.
- Bunching Donations: Giving multiple years’ worth of donations in a single year to maximize deductions when itemizing.
- Appreciated Assets: Donating stock or real estate instead of cash to avoid capital gains taxes and still claim a deduction.
By planning charitable contributions well in advance, you can maximize their impact while considering your tax situation.
Estate and Legacy Planning
Estate taxes can take a substantial portion of your wealth without careful planning. A structured approach to estate planning helps you pass on assets efficiently while minimizing tax exposure. Consider strategies such as:
- Annual Gift Tax Exclusion: Gifting up to the annual exemption amount to heirs without incurring gift tax.
- Trusts: Utilizing irrevocable trusts, grantor trusts, or charitable remainder trusts to distribute wealth strategically.
- Tax-Efficient Transfers: Structuring ownership of real estate or business interests in ways that reduce estate tax burdens.
- Reviewing Beneficiary Designations: Keeping IRA and life insurance beneficiary lists up to date to prevent unintended tax consequences.
A long-term tax plan for your estate helps you stay in control of how your wealth is shared and keeps more of it aligned with your wishes.
Keeping Tax Planning a Priority Year-Round
The biggest advantage of ongoing tax planning is flexibility. By regularly reviewing your financial situation, you can adjust strategies based on new laws, shifting markets, or changing personal circumstances. Working closely with a financial advisor and tax professional throughout the year allows you to stay informed and make decisions that align with your broader financial goals.
Take Action Today
If tax planning has only been a once-a-year concern, it may be time to take a more proactive approach. By treating it as an ongoing strategy, you can keep more of your wealth working for you. Reach out to TandemGrowth to explore how year-round tax planning can support your financial future.
About the Author: Jeff Bernier
