Tax Planning – Do I need it?

I frequently get asked if I think someone could use tax planning. Everyone wants to hear that I hold secrets that will unlock boatloads of tax savings for them. Why pay more to Uncle Sam if you don’t have to? But the truth of the matter is that tax planning involves enough time and cost that it makes sense to get an idea in advance whether or not you’re a good candidate.

I’m sharing this guest blog post from My Financial Coach that outlines what tax planning can do for you and who is more likely than others to be a good candidate to uncover tax savings during the tax planning process. You can view the original post by Jonathan Vander Werff, CFP® here: What Would Your Tax Planner Do?

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What Would Your Tax Planner Do?

Did you become a Bitcoin millionaire last year and cash in? Tax day is only a little over a month away and it’s almost time to settle up with Uncle Sam.

Are you self-employed? Have a rental property? Any foreign income or investments? Did you track your transportation expenses when you volunteered at your favorite charity? You should consider hiring a professional to help you file if your taxes are complicated. But do you hire a professional tax planner or a tax-preparer?

A tax-preparer looks back at the prior year and asks about what you might have done to reduce taxes. A tax planner does this too, but will also give you a plan to minimize taxes for the coming year. In other words, tax preparation is a reactive process and tax planning is a proactive process. Like a financial plan, a tax plan should be long-term in scope while offering the flexibility to address short-term concerns as they arise.

If your tax preparer is pointing out tax-saving techniques that you should have employed in the previous year, you’re missing out on a big benefit offered by a tax planner. If you were penalized for inadequate quarterly estimated tax payments, that’s a lack of tax planning. If you paid substantial capital gains taxes, it’s likely that a tax planner could have helped you minimize those taxes. Your tax planner might have suggested that you reinvest those capital gains into a Qualified Opportunity Fund in order to defer and reduce those capital gains taxes.

You know a child and dependent care tax credit is available, but do babysitter expenses qualify? Is anyone in your household attending post-secondary education? Don’t miss out on American Opportunity or Lifetime Learning tax credits. Maybe you have medical expenses, but not enough to take a tax deduction. You can still get a tax break with a Health Savings Account if you’re eligible. You might be one of the millions of people who’ve transitioned to working from home. You could plan on filing state income taxes in two states if your employer is located in a different convenience of employer state. If you’re not self-employed, you probably don’t get to write off home office expenses like phone service or internet. But maybe your state, California for instance, forbids employers from requiring you to incur work expenses without reimbursement. Your tax plan should make sure that you’re making the most of these credits, deductions, and state-specific requirements.

A tax planner would likely benefit a taxpayer who owns a business or interest in a partnership. What type of business entity makes the most sense for your small business? How do you properly employ family members? Does cash accounting or accrual accounting make more sense for your business? Does being self-employed mean you can write off the mileage of your daily commute? You need to know what miles to track and how to properly log those miles. A beneficiary of a trust should also reach out to a tax planner to identify the ideal taxability of distributions.

In the same way your financial coach will help you understand how major financial decisions impact your goals, your tax planner can let you know how that decision would affect your tax bill. Many of the concepts and tactics recommended by your financial coach should be performed in partnership with your tax planner, such as:

  • Managing your tax bracket, today and during retirement
  • Giving to charity
  • Converting pre tax IRA or 401(k) money to Roth
  • Tax-loss harvesting and rebalancing portfolio
  • Contributing to and distributing from qualified retirement plans
  • Selecting the most appropriate retirement plan for your small business
  • Asset allocation and location – do tax-exempt bonds make sense for you?

If the name of the game is minimizing taxes, what you don’t know can hurt you financially. As you and your tax preparer wrestle with your tax return this year, ask yourself if you feel prepared and confident about the filing. If not, an experienced tax planner is likely the professional to bring you some peace of mind that you’re paying no more than tax law requires. Reach out to your financial coach with questions about how taxes impact your financial goals or how a tax planner can help you.


Jonathan Vander Werff, CFP®

Financial Coach

Planning for 2022 Taxes

The IRS Has Increased Several Key Deductions and Exemptions

The spike in inflation we’ve seen this year has impacts beyond having to pay more for goods and services. The IRS uses consumer price inflation (CPI) to determine certain increases to exemptions and deductions for federal tax purposes. These are automatic and calculated from the rise in CPI. That means that the increased inflation this year may actually end up saving you money. While the changes are for 2022 and you won’t be paying the associated taxes until 2023, it’s a good idea to be aware of the new limits.

You may be able to make changes as you go that can help you maximize the benefit. For example, the amounts for Flexible Spending Accounts (FSAs) and the commuter benefit increased, so you may want to have more taken out of your paycheck. This saves you money by paying with pre-tax dollars.

The income levels at which AMT applies also went up. If you have stock options, AMT very often comes into play. The increase amounts to $2,300 over the 2021 level for a single filer. While it doesn’t seem like much, it may be enough to allow you some flexibility in structuring them that will save you on taxes.

Taking the Standard Deduction
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The standard deduction increased in 2018, and many taxpayers now opt not to itemize. For 2022, this choice becomes even more attractive as the deduction for a married couple filing jointly increased by $800. Taking the standard deduction simplifies tax preparation, but if you have deductible expenses such as medical expenses, property taxes, mortgage interest, charitable giving, or others (and there are hundreds), you may be passing up tax savings.

If your total itemized deductions are close to the amount of the standard deduction, there are strategies for charitable giving that can increase your tax deductions in any one year. This can be done without increasing your overall plans for giving. Giving some thought to your deductions as you move through the year can help you keep track of where you want to be.

Standard Deduction Amounts 2022

Standard Deduction Amounts 2022


Alternative Minimum Tax

The alternative minimum tax was created to limit the amount that high-income taxpayers can lower tax amounts through deductions or credits. It sets a floor on the amount of tax that must be paid. The AMT is particularly relevant if you have been granted incentive stock options (ISOs) as part of your compensation.

The AMT is adjusted based on the price you pay for the shares (the strike price) and the fair market value when you exercise. Because you can choose when to exercise, you have some flexibility in avoiding or minimizing AMT, but it requires careful planning of your income.

Alternative Minimum Tax (AMT) Exemption Amounts 2022


Flexible Spending Accounts and Commuter Benefits

The dollar limit for 2022 contributions to a flexible savings account is $2,850, an increase of $100 over 2021. If your plan allows carryovers, the new carryover limit is $570.  The monthly commuter benefit contribution limit for 2022 to your qualified parking and transit accounts increased to $280.

Gift and Estate Tax Exclusions

The annual federal exclusion for gifts was bumped up $1,000 to $16,000 for 2022. For a married couple, this means they can gift $32,000 to any individual without using their lifetime exemption. The lifetime exemption also went up, to $12.06 million per person.

The Takeaway

Increases in deductions and exemptions are one of the few areas that inflation can help out investors – but you’ll need to plan ahead to take advantage of some of the increases. There are lot of moving parts to a comprehensive plan that can save you money on taxes, and it’s never too early to get started in making the right moves.

Tax Planning 2022 IRS Deduction and Exemption Increases


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The information contained herein is intended to be used for educational purposes only and is not exhaustive.  Diversification and/or any strategy that may be discussed does not guarantee against investment losses but are intended to help manage risk and return.  If applicable, historical discussions and/or opinions are not predictive of future events.  The content is presented in good faith and has been drawn from sources believed to be reliable.  The content is not intended to be legal, tax or financial advice.  Please consult a legal, tax or financial professional for information specific to your individual situation.

This content not reviewed by FINRA.