Column: Six tax planning strategies for January 

By Jason Glisczynski

Now is a good time to start thinking about tax planning for the year ahead.

To be clear, planning for taxes in January is focused on the current tax year, not the previous year you are about to file for. Essentially, if you wait until January 2023 to plan for the 2022 tax year the probability of making a significant impact on lowering your taxes has been diminished by a few options.

Developing a habit of planning for the tax year starting in January, and ongoing, will open the door to more opportunities to reduce your tax liability and reduce the stress on your tax professional come tax filing time.

Here are a few key things you can do in January to get a head start:

1. Review all taxable income sources and your tax bracket(s).  Knowing which sources of income are taxed and the related tax associated with those sources will help you devise strategies to reduce the tax liability.  Many taxpayers are unaware that they may have a choice when it comes to how things will be taxed.
2. Review tax deductions and credits you are eligible for. Tax deductions reduce the amount of income that is subject to taxation, while tax credits directly reduce the amount of tax you owe. It is important to know which credits are refundable versus non-refundable to ensure year over year you are applying the best strategy for taking credits and deductions. 
3. Consider maximizing your retirement account contributions sooner rather than later.  Oftentimes individuals will make retirement plan contributions close to the tax filing deadline because their accountant advised them to do so to get a bigger tax refund.  By waiting until April of the following year, you miss out on as much as 15+ months of growth had you invested right away in January.
4. If you have investments, now is a good time to review them to see if there are any opportunities to save on taxes, what I like to call “tax alpha”.  While tax alpha may seem small in a given year, the power of compounding can create a significant long-term positive impact for investors engaged in proactive tax management.  Tax alpha strategies may include tax-loss harvesting, direct indexing, ROTH IRA conversions, or adding tax types that are currently absent in your portfolio. 
5. Put your tax-advantaged savings account to work.  While careful consideration must be made before doing so, it may make sense to invest in your Health Savings Account (HSA) or Flexible Spending Account (FSA) instead of leaving the money in a low-interest rate account.  
6. Finally, review your withholding(s). Make sure that your employer is withholding the correct amount of tax from your paychecks. If you are not having enough tax withheld, you may end up owing money when you file your tax return. On the other hand, if you are having too much tax withheld, you could be giving the government an interest-free loan. You can use the IRS’s withholding calculator to help determine the correct amount of tax to have withheld.

Overall, tax planning is an ongoing process, and it’s important to review your taxes regularly to make sure you are taking advantage of all available tax breaks and deductions. By getting a head start on your tax planning in January, you can set yourself up for a successful tax season and potentially save yourself some money in the process.

Jason Glisczynski is co-owner and principal advisor for Silvertree, LLC.  Investment Advisory Services are offered through Brookstone Capital Management (BCM) LLC, a Registered Investment Advisor. Silvertree, LLC, and BCM are separate companies.  Visit www.silvertreeplan.com for more information.