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If you think tax season is over, you need to think again

Now that your returns are filed, start planning for next year


Americans think of doing their taxes as a daunting task that takes place every 12 months. Reactions range from shock about the amount owed to joy over spending a refund. Most of us want to forget about tax season the minute our returns are filed. Just because tax season is over, however, doesn’t mean you should forget about taxes until next year. Now is the time to start planning.

A good accountant and investment advisor can team up to plan throughout the year to help you save thousands in taxes. When it comes to your investments, this may mean managing a tax-efficient portfolio, contributing to a 401(k), or setting up the correct retirement account.

Retirement Accounts

Maximizing deductible contributions to a retirement plan not only provides a way to save for retirement, but also lowers taxable income. In the case of a Traditional IRA and SEP IRA, contributions can be made up until the tax deadline for the previous year. This provides flexibility if you did not plan ahead.

For those with access to a 401(k), advanced planning is required. You can only make a contribution in the calendar year you would like to take a deduction and you are only able to contribute up to the amount of your reoccurring paycheck (up to the annual maximum limit). This may mean that you will not be able to maximize your 401(k) contributions if you wait until late in the year to try to catch up. As a result, you will have to plan and make adjustments throughout the year.

Managing a Tax Efficient Portfolio

Accumulations in retirement accounts grow tax-deferred. Income and dividends from after-tax accounts, however, are subject to tax. Accumulations in this type of account must be invested carefully. For example, the income from tax-exempt bonds is not subject to Federal tax and can be a good option for a high income earner. On the opposite spectrum, real estate investment trusts (REITs) are better held in tax deferred accounts. Investing in equities that will produce qualified dividends (as opposed to nonqualified dividends) is another way investors can save money in taxes. An appropriate tax strategy for after-tax investments is critical for investors and must be carefully planned out to minimize tax consequences.

Business Owners

Business owners are a completely different animal. Setting up the appropriate retirement plan is critical to maximizing deductions and contributions while attracting and retaining employees. With the onset of technology, 401(k) plans are now available to even the smallest businesses. Planning in advance is critical. For example, the wildly popular safe harbor 401(k) must be set up by Oct. 1. Profit sharing is an option that compliments a 401(k) plan that provides the opportunity for business owners to make contributions for the previous year to save additional money for retirement, reward employees, and control taxes.

Planning in advance for taxes is not an easy process, but the options are robust. Just when you thought it was time to forget about taxes, it’s the perfect time to start planning.

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Kevin McNab

Kevin McNab is the founder and president of ACE Wealth Partners. Kevin has a Masters of Finance from the University of Colorado Denver and the Certified Financial Planner (CFP) certification. ACE Wealth Partners is an independent, fee-only comprehensive financial planning, asset and wealth management firm. Information contained in this article is for informational purposes only and should not be considered investment advice or recommendations. Advice may only be provided after entering into an advisory agreement with ACE. For more information, please go to www.acewealthpartners.com.

Kevin can be contacted at kevin@acewealthpartners.com or (303) 263-3235.

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