Tax Preparation and Planning Starts Now: 5 Moves to Make Before Fall
As summer winds down and business owners focus on closing out the third quarter, it’s important not to overlook the critical task of tax preparation and planning. Many taxpayers tend to wait until December to address their tax situation, but starting your tax planning earlier—such as in August—can provide significant advantages. Early preparation allows you to implement effective tax strategies that reduce your tax burden, avoid costly surprises, and ensure tax compliance well before the tax deadline. In this article, we will explore five smart moves you can make now to optimize your federal income taxes and overall financial life before the year ends.
1. Review Your Estimated Tax Payments for Tax Planning
One of the first steps in year-end tax preparation planning is to review your estimated tax payments. The next quarterly tax deadline is September 15, and if your income has fluctuated throughout the year, adjusting these payments is crucial, as it directly affects the amount you ultimately pay in taxes. Many taxpayers, especially those with self employment income or variable earnings, may find that their initial estimates no longer align with their actual income.
By reassessing your taxable income and adjusting your estimated payments accordingly, you can avoid underpayment penalties imposed by the Internal Revenue Service (IRS). It's important to keep track of taxes already paid throughout the year to ensure you neither overpay nor underpay when tax season arrives. This also helps maintain smoother cash flow throughout the remainder of the tax year. Whether you use tax software or consult a tax preparer, ensuring your payments reflect your current income tax situation is a key tax planning strategy that can save you money and stress.
2. Catch Up on Bookkeeping
Accurate and up-to-date tax records form the foundation of effective tax preparation. If your bookkeeping has fallen behind, August is an ideal time to catch up before the busy fall season arrives. Proper bookkeeping ensures you have a clear picture of your income, expenses, and potential tax deductions, which directly impacts your adjusted gross income and ultimately your tax bill.
Maintaining organized tax records—including receipts, bank account statements, account numbers, direct deposit information, and other records—helps you maximize tax benefits such as tax credits and deductions. For example, tracking expenses related to household items, business purchases, or gambling losses can provide valuable deductions that reduce your taxable income. Whether you handle your own tax preparation or work with tax professionals, clean and accurate records help avoid errors on your federal income tax return and state tax return alike.
3. Consider Retirement Contributions to Retirement Accounts
Contributing to retirement accounts is one of the most effective tax planning strategies available. There are two major types of IRAs: traditional IRAs and Roth IRAs. The fundamental difference is that traditional IRAs may allow for tax-deductible contributions and taxed withdrawals in retirement, while Roth IRAs are funded with after-tax dollars and offer tax-free growth and tax-free withdrawals in retirement.
Retirement plans such as traditional IRAs, Roth IRAs, SEP IRAs, and Solo 401(k)s not only help you save for the future but also offer significant tax advantages today. Contributions to traditional IRAs or SEP IRAs can reduce your taxable income, thereby lowering your tax rate and overall tax burden for the year. For traditional IRAs, contributions may be tax-deductible, but withdrawals are taxed as ordinary income in retirement. With a Roth IRA, contributions are made with after-tax dollars, and qualified withdrawals are not taxed. It's important to understand when and how you will pay taxes on IRA withdrawals, as the tax treatment depends on the type of account.
Taking action now to make retirement contributions before the tax year ends allows you to maximize your contribution limits and take advantage of tax benefits. The annual contribution limit for IRAs is set by the IRS and may be increased for individuals age 50 or older through catch-up contributions. Additionally, funding health savings accounts (HSAs) or other tax-advantaged accounts can further reduce your adjusted gross income and provide long-term financial security. HSAs are typically opened and managed through a financial institution such as a bank or credit union. Meeting with tax consultants or accounting professionals can help you determine the best retirement plan options based on your filing status and income level.
4. Evaluate Business Purchases or Upgrades
If you are a business owner, evaluating potential purchases or upgrades before year-end can be a powerful tax planning move. Investments in equipment, software, or technology may qualify for special tax deductions such as Section 179 expensing or bonus depreciation. These provisions allow you to deduct the cost of qualifying property in the year of purchase, thereby offsetting capital gains or reducing ordinary income. Property taxes paid on business property can also be included as part of your itemized deductions, potentially increasing your overall tax savings.
Strategic timing of these business expenses can lower your taxable income and reduce your overall tax bill. For example, purchasing new machinery or upgrading your online marketplace tools before December 31 can enhance your operations while providing tax benefits. Consulting a good tax preparer or tax consultants can help you navigate the complex tax code and identify which purchases will maximize your tax advantages.
5. Meet with Your CPA Before the Rush
Finally, don’t wait until the last minute to meet with your CPA or tax preparer. Tax preparers and tax return preparers play distinct but complementary roles in helping individuals and businesses with tax compliance and filing—tax preparers often focus on planning and strategy, while tax return preparers specialize in accurately preparing and filing tax returns. Scheduling a consultation now gives you ample time to discuss your tax situation, explore tax planning strategies, and implement changes that can significantly reduce your 2025 federal tax returns. Proactive tax preparation and planning with a qualified tax professional ensures you stay compliant with tax laws and avoid errors that could delay processing or trigger audits.
A good tax preparer with professional credentials, such as a master's degree in taxation or business taxation, or certification, can enhance their expertise and credibility, providing you with more informed guidance. Tax professionals provide clients with comprehensive financial services, including ongoing support and tailored tax planning solutions. Whether you need help with annual tax returns, state tax returns, or complex tax planning, engaging a tax professional early in the tax year is an investment that pays off with more money in your pocket and peace of mind.
Final Thoughts
Tax preparation and planning is about more than just filing your taxes on time—it’s a year-round strategy to optimize your tax situation and financial health. By starting your year-end tax planning now, you can minimize your tax burden, take full advantage of tax deductions and credits, and avoid last-minute stress. From reviewing estimated tax payments to making strategic retirement contributions and business purchases, these five moves will set you up for tax success.
If you need expert assistance with tax planning or bookkeeping before year-end, contact Tharrington CPA today to schedule a consultation. With professional tax services and personalized guidance, you can confidently navigate the tax code and keep more of your hard-earned money.