What is tax planning? How to manage your current and future taxes

Allworth financial advisor Allison Scoggin, CFP®, explains the importance of tax planning, offering practical strategies to manage taxes today and in the future, while aligning with your broader financial goals.

Tax planning might sound intimidating, but it doesn’t have to be. At its core, it’s about understanding how taxes affect your finances today and making smart decisions to minimize what you’ll owe in the future. It’s not just about preparing for April 15—it’s about being proactive year-round to ensure your financial goals and tax strategy are working together seamlessly. By taking small, intentional steps, tax planning can help you keep more of your money and bring clarity to your financial future.

Let’s explore what tax planning really means, how it works, and why it’s a critical part of your overall financial strategy.

What Is Tax Planning?

At its core, tax planning is the process of understanding how taxes affect your finances today and making smart decisions to minimize what you’ll owe in the future. It’s not just about preparing for April 15—it’s about taking a proactive approach to managing your income, investments, and deductions year-round. And here’s the key: good tax planning doesn’t happen in a vacuum. It’s about seeing the bigger picture of your financial goals and aligning your tax strategy with them.

Tax Planning for Today: Start with a Year-to-Date Review

One of the first steps I like to take with clients is a year-to-date tax summary. This involves looking at your accounts to see what taxable income has been generated so far, such as:

Dividends and Interest: Investment accounts and bank accounts may be producing taxable income that can add up quickly.
Capital Gains or Losses: Have your investments gained value this year? Or are there losses we can strategically harvest to offset gains?
Income Sources: Are you earning W-2 income, self-employed 1099 income, or drawing from pensions or retirement accounts like a 401(k) or IRA? Each source is taxed differently, and understanding where your income comes from is essential.

This review helps ensure there are no surprises come tax time. Nobody wants to get blindsided by a larger-than-expected tax bill because of an overlooked source of income.

Tax Planning for Tomorrow: Think Strategically About the Future

Once we have a clear picture of where you stand today, we can start thinking ahead. Tax planning isn’t just about minimizing your current tax liability; it’s also about positioning yourself for long-term success. Here are some examples of how we do that:

Maximizing Tax-Advantaged Accounts: If you’re still eligible to contribute to a Roth IRA, that’s often a great move. If you’re not eligible, there may be other strategies to build tax-free savings for the future.
Roth Conversions: If you’re in a lower tax bracket this year, we might consider converting some of your traditional IRA funds to a Roth IRA. Yes, you’ll pay taxes on the conversion now, but the growth in a Roth IRA is tax-free going forward.
Timing Capital Gains and Losses: If you’re planning to sell an investment, we’ll evaluate whether this year or next year is better based on your tax bracket and other factors.
Charitable Giving Strategies: If you’re making donations, there are tax-smart ways to do it, like using appreciated stock or setting up a Donor-Advised Fund.

Good tax planning is like playing chess—you think several moves ahead to set yourself up for success.

Common Questions About Tax Planning

Here are a few questions I often hear from clients when we discuss tax planning:

“Why is this important if I already work with a CPA?”
Great question! While your CPA focuses on preparing your tax return, tax planning is more about strategy. It’s about understanding how your financial decisions today will impact your tax bill tomorrow.
“Can’t my investment accounts handle this automatically?”
Investment platforms may optimize for tax efficiency, but they don’t know your entire financial picture. Tax planning integrates all aspects of your finances—income, investments, retirement savings, and more.
“Is tax planning only for the wealthy?”
Absolutely not! Everyone benefits from proactive tax planning. Whether you’re earning a paycheck, managing a small business, or drawing from retirement accounts, understanding your tax situation can save you money and stress.

Why Tax Planning Matters for Your Financial Goals

Tax planning is about more than just dollars and cents—it’s about helping you achieve what’s most important to you. Whether that’s retiring early, leaving a legacy for your family, or simply feeling confident about your financial choices, tax planning can help you get there.

So, what should you expect from your financial advisor when it comes to tax planning? You should expect proactive communication, regular reviews, and clear guidance on how to make the most of your current and future opportunities.

Let's Talk

If this sounds like something you’d like to explore, let’s talk about how tax planning fits into your overall plan. It’s never too early—or too late—to start making smarter decisions about taxes. Together, we can create a strategy that helps you feel more in control of your finances today and in the future.

Let’s take the mystery out of tax planning and turn it into a tool for building your financial confidence. Reach out if you’d like to get started!

Allison Scoggin, CFP®

Partner Advisor

No matter what changes may happen in life, I believe it’s possible to refocus any situation in a way that helps to create positive change. That is why I love being a financial advisor and helping my clients listen to their inner voice and change their outcomes for the better.

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