Why You Should Plan Taxes 2 Years at a Time
Admit it, planning for taxes isn't exactly the most enjoyable task. You probably have a lot of other things you'd rather be doing. However, it's crucial to engage in accurate tax planning for the sake of your overall financial well-being. By planning for taxes early, you can save money, minimize errors, and reduce stress when tax season rolls around.
It's worth exploring why you should consider planning your taxes for a two-year period.
The Benefits of Planning Ahead
Although it's common to procrastinate and delay tax planning, creating a two-year tax plan is a wise decision. By planning your taxes for a two-year period, you can anticipate the future and implement strategies to optimize benefits and reduce your tax burden. Here are some advantages of engaging in a two-year tax planning approach:
Early Organizing Results In Fewer Errors
Planning your taxes ahead of time enables you to gather all your documents and information, reducing the likelihood of errors in your tax returns. Avoiding errors is crucial since they can delay the process and cause unnecessary complications.
Eliminate Deadline Stress
Getting essential tax documents in order reduces procrastination and relieves stress associated with tax deadlines.
Applicable Tax Deductions & Credits Should Be Taken
By planning early, you can be sure that you're claiming all eligible tax deductions and credits. Reviewing your present and projected income levels enables you to assess your standing and make necessary adjustments to accurately calculate your taxes. Additionally, utilizing the IRS's Tax Withholding Estimator on their website can aid in estimating the federal income tax you'd like your employer to withhold from your paycheck as you plan for the future.1
Have Time to Review Tax Law Changes
Since tax laws are subject to frequent changes, planning for two years at a time allows you to review the latest updates and become aware of their effective dates, empowering you to take proactive measures in your tax planning.
Develop a Payment Plan Strategy
Planning in advance enables you to anticipate your tax liability and establish a payment strategy if necessary. If you're self-employed or receive investment income, you'll have sufficient time to calculate and incorporate quarterly taxes into your budget.
Be Strategic With Your Investments
Implementing a two-year plan also allows you to optimize the tax efficiency of your investments. For instance, you can factor in capital gains and strategize the timing of when to pay taxes on them, based on your advantage. It's crucial to evaluate your tax obligation before selling significant assets, such as your business, home, or appreciated stocks.
Plan for Major Life Changes
Anticipating major life changes, such as selling your home, marriage or divorce, retirement, or relocating to a different state with distinct tax regulations, is possible through early planning. This enables you to adjust and adapt your tax planning accordingly.
Plan Your Retirement Contributions
Similar to organizing your investment allocations, you can devise a tax-efficient retirement contribution strategy to guarantee your retirement plan is adequately funded.
Time Your Charitable Giving
Employing charitable giving is another way to leverage proactive tax planning. By planning ahead, you can utilize charitable donations as a means of decreasing your tax burden.
Find Tax Help
Finally, planning ahead provides you with ample time to locate and collaborate with a reliable expert, if required, to coordinate tax and financial planning. By planning your taxes two years in advance, you can strategically devise your tax savings and prepare for any tax modifications that may arise. By planning early, you can mitigate the stress and worry that accompany last-minute tax planning. Nobody wants to gather crucial tax documents just days before the filing deadline! Being proactive and assessing your short-term and long-term financial situation can aid in a more efficient approach to tax planning.