Why August Is a Good Time to Start Year-End Tax Planning

Most people think about taxes in March and April. For many successful families, that is too late.

Tax preparation looks backward. Tax planning looks forward. And when you have investments, retirement accounts, real estate, charitable giving or a significant estate, there may be opportunities to make better decisions before December 31.

That is why August can be an excellent time to start your year-end tax planning.

Look at the Bigger Financial Picture

Good tax planning shouldn't happen in isolation. Decisions should be coordinated with your investments, retirement plan, estate plan and long-term financial goals.

For example, a Roth conversion creates taxable income today but may reduce future taxable retirement income. Realizing capital gains could help diversify a concentrated investment position. Charitable giving may also provide tax benefits when structured appropriately.

The goal isn't simply to pay the least amount of tax this year. It's to make smart financial decisions while being thoughtful about taxes along the way.

What Should You Review Before Year-End?

A few areas worth reviewing include:

• Capital gains and losses: Are there opportunities to offset gains or rebalance your portfolio?
• Roth conversions: Would converting some IRA assets make sense based on your current and future tax situation?
• Charitable giving: Could appreciated securities, a donor-advised fund or Qualified Charitable Distributions make your giving more tax-efficient?
• Estate planning: Are your beneficiaries, estate documents and gifting strategies still aligned with your wishes?
• Retirement income: Are you taking money from the right accounts in the most tax-efficient way?

Why Start Now?

Waiting until December can limit your options. Starting in August or September gives you, your financial advisor and your tax professional time to identify opportunities and make changes before year-end.

At Alpha Wealth Management and Planning, we believe tax planning should be part of comprehensive financial planning, not a once-a-year exercise.

Instead of only asking, "What will I owe in taxes?" consider asking:

"What can we do now to put me in a better financial position for the years ahead?"

If you are approaching retirement, recently retired, received an inheritance, sold a business or simply want a more coordinated financial plan, now is a good time to review your year-end strategy.