After You've Filed Your Return

You've filed your tax return, and now you're ready to kick back and forget about taxes for a while.

Not so fast — tax savings require more than a year-end scramble to defer income and accelerate expenses. In fact, the most effective way to lower your tax bill is to treat tax planning not as an annual event but rather as a year-round process. Here are some strategies that will help you keep more of what you earn.

Start with your recently filed return

• Did you end up writing a large check to Uncle Sam that included an underpayment penalty?
• Or did you receive a large refund check?

Each of these scenarios represents a tax-planning opportunity. When it comes to the government's pay-as-you-go tax requirement, the key is to send the IRS only enough to avoid interest or penalties.

• If you're concerned that you'll owe more taxes this year, adjust the number of allowances on your W-4 or pay more in estimated taxes.
• To rectify an overpayment situation that you may be facing, consider increasing the number of allowances claimed.

By making these corrections early in the year, you get the full benefit of the adjustment.

Offset capital gains with capital losses

Selling investments may provide you with ready cash, but you'll also have to pay a capital gains tax on your profits. One way to minimize your capital gains tax bill is to sell off some investments that have depreciated in value.

Make retirement planning a priority

Arrange to make retirement plan contributions early in the year. Keep in mind that the sooner you set aside the funds, the more you will maximize the benefits received from the tax-deferred compounding of investment returns with retirement plans.

And if you're not funding your 401(k) or 403(b) plan at work to the maximum, take some time now to figure out how you can cut expenses and increase your contributions.

Plan your charitable giving

Creating a charitable-giving plan in advance provides you with the opportunity to make tax-wise contributions. For example, if you have held securities for over a year and they have increased in value, consider giving those to charity.

When you contribute appreciated property that you have held over a year, you not only can deduct the property's full appreciated value, but you also avoid paying capital gains tax on the profit.

Maximize deductions

Certain deductions, such as medical expenses and miscellaneous deductions, have "floors" — minimum amounts you have to exceed before a deduction is allowed.

With time on your side, you can work toward the concept of bunching deductions — the practice of accelerating expenses into this year if it appears you might reach the floor, or deferring expenses into next year if you don't expect to exceed the floor in this year. The same strategy applies to your miscellaneous itemized deductions, including unreimbursed employee business, job-hunting, investment and tax-preparation expenses.

Shift income

Another strategy you might consider now for reducing your taxable income is to shift income to other family members. Under current tax law, you can gift to your children, or anyone else, up to $12,000 each annually ($24,000 if your spouse joins you in the gift) without being subject to the gift tax. Income generated by the gift is taxed to the new owner.

Don't wait until year end

Remember, when it comes to saving tax dollars, timing can be everything. Don't wait until the last minute to take the steps that can minimize your tax bill for this year and beyond.

None of the information on this website should be considered tax or legal advice. You should consult your legal or tax advisor for information concerning your individual situation.