The 2024 tax season will officially start on January 29, 2024, according to the Internal Revenue Service (IRS). Proactive tax planning can help you minimize liability, help maximize your savings, and help ensure compliance with the latest tax regulations.
The IRS expects more than 128.7 million individual tax returns to be filed by the April 15, 2024, tax deadline. Although January 29th is when the IRS begins processing returns, taxpayers are free to start working on their returns now. IRS Free File, which allows participating software companies to collect returns and store them until they can be electronically filed, opened on January 12, 2024.
“IRS employees are working hard to make sure that new funding is used to help taxpayers by making the process of preparing and filing taxes easier,” said IRS Commissioner Danny Werfel.
Some of the changes for 2024 filing include:
- Expanded in-person service through the opening/reopening of Taxpayer Assistance Centers.
- An expanded customer call back feature to cut long phone wait times.
- Improvements in the Where’s My Refund? tool.
- Enhanced paperless processing.
- Enhanced individual IRS online accounts that include chat help, the ability to store bank accounts for payments, and more.
- A pilot program called Direct File that allows certain taxpayers the option of filing their returns directly with the IRS for free. Direct File is on a phased rollout and is expected to be available in mid-March.
In this comprehensive guide, we’ll explore key steps to kickstart your tax planning strategy to set yourself up for financial success in the coming year.
1. Assess Your Financial Situation
Before you can start planning, you must understand where you’re financially at now. Begin by taking a close look at your current financial situation. Review your income, expenses, investments, and any significant financial changes that occurred in the past year. Understanding where you stand financially is crucial for developing an effective tax strategy.
2. Leverage Tax Credits and Deductions
Explore available tax credits and deductions to help optimize your tax situation. Common credits include:
- Education Credits: Provide tax credits for qualified education expenses, supporting higher education costs.
- Mortgage Interest Deduction: Allows homeowners to deduct interest paid on mortgage loans, promoting homeownership.
- Charitable Contributions Deduction: Permits taxpayers to deduct qualifying charitable donations, encouraging philanthropy.
- Small Business Deductions: Include deductions for business-related expenses such as travel, office supplies, and employee salaries.
3. Stay Informed About Changing Tax Laws
Tax laws are subject to change, and staying informed about any updates that may impact your tax planning is essential. Monitor changes in income tax rates, deductions, and credits. Consider consulting with a financial advisor to help ensure you know any new regulations that may affect your tax liability.
4. Maximize Retirement Contributions
A recent TIAA study reveals that over half of American adults lack awareness of the typical duration of retirement years. So understanding your savings goal and the level of risk you’re willing to take to get there is a crucial step of retirement planning. Especially if you are concerned about outliving your savings.
Contributing to retirement accounts is a smart way to save for the future and can sometimes provide immediate tax benefits. Make the most of your contributions to tax-advantaged retirement accounts like 401(k)s, IRAs, or other employer-sponsored plans. During this phase, it’s essential to review your retirement accounts thoroughly, considering recent changes in tax laws. Compliance with these laws is a legal requirement and key to protecting your assets.
5. Consider Tax-Efficient Investments
Investments can play a significant role in your overall tax picture. Consider tax-efficient investment strategies to qualify for lower capital gains tax rates. Some tax-efficient investment types include:
- Tax-Advantages Retirement Accounts: Investments in accounts like 401(k)s and IRAs offer tax advantages, such as tax-deductible contributions or tax-free withdrawals in retirement.
- Health Savings Accounts (HSAs): Contributions to HSAs are tax-deductible, and withdrawals for qualified medical expenses are tax-free, making it a tax-efficient option for healthcare savings.
- Municipal Bonds: Interest income from municipal bonds is often exempt from federal taxes and, in some cases, state and local taxes, providing a tax-efficient investment option.
- Index Funds and ETFs: These passively managed funds generate lower capital gains, helping reduce tax implications compared to actively managed funds.
- Tax-Efficient Mutual Funds: These funds are designed to help minimize capital gains distributions, helping investors manage their tax liability.
Remember, an investment’s tax efficiency depends on individual circumstances, and consulting with a financial advisor is a great avenue for personalized tax planning advice.
6. Review Estate Plan
Estate planning is one of the most important things you can do for yourself and your family. It helps you proactively manage your financial assets and healthcare decisions during your lifetime and after passing. Reviewing your estate plan, wills, trusts, and beneficiary designations is key to helping ensure your affairs are in order.
One significant benefit for Iowa retirees is that there is no gift tax. However, it’s important to note that the federal gift tax still applies. For 2023, the federal gift tax allows a per-year exemption of $17,000 for each gift recipient. If you give a single individual more than $17,000 in a single year, reporting that gift to the Internal Revenue Service (IRS) is necessary. Filing requirements apply in such cases to help ensure compliance with federal gift tax regulations.
Proper estate planning can help minimize estate taxes and help ensure your beneficiaries receive the maximum amount of your assets. Consult with a knowledgeable fiduciary experienced in estate planning to explore strategies such as gifting, charitable giving, and setting up trusts that could help reduce your tax liability.
How Working With a Fiduciary Advisor Can Help
Partnering with a financial advisor can be paramount for a successful tax planning strategy. Fiduciary advisors are favorable because they must – by law – manage their client’s money for their benefit, not their own.
Their skills, knowledge, and experience allow for a comprehensive analysis of your financial situation, identifying opportunities for tax optimization and efficient planning.
At Johnson Wealth and Income Management, our team of dedicated Fiduciary advisors is here to help you every step of the way. Whether you are a high-net-worth individual, a business owner, or someone navigating life changes, our advisors can help ensure you stay compliant with the latest tax regulations.
Start Working With Us Today!
At Johnson Wealth and Income Management, our Iowa-born and bred Fiduciary advisors are here to offer deft financial guidance. We craft a customized roadmap to help you navigate the intricacies of the tax landscape. This collaborative approach not only reduces your tax burdens but also cultivates a strong sense of financial security and confidence in your long-term wealth management aspirations.
All written content on this site is for informational purposes only. Opinions expressed herein are solely those of Johnson Wealth & Income Management and our editorial staff. Material presented is believed to be from reliable sources; however, we make no representations as to its accuracy or completeness. Investing involves risk. There is always the potential of losing money when you invest in securities. Asset allocation, diversification and rebalancing do not ensure a profit or help protect against loss in declining markets. All information and ideas should be discussed in detail with your individual advisor prior to implementation. The presence of this website, and the material contained within, shall in no way be construed or interpreted as a solicitation or recommendation for the purchase or sale of any security or investment strategy. In addition, the presence of this website should not be interpreted as a solicitation for Investment Advisory Services to any residents of states where otherwise legally permitted to conduct business. Fee-based financial planning and Investment Advisory Services are offered by Sound Income Strategies, LLC, an SEC Registered Investment Advisory firm. Johnson Wealth & Income Management and Sound Income Strategies LLC are not associated entities. Johnson Wealth & Income Management is a franchisee of the Retirement Income Source. The Retirement Income Source and Sound Income Strategies LLC are associated entities. © 2023 Sound Income Strategies.