Q2 Planning Spotlight – My Taxes are Done, Now What?

“Good fortune is what happens when opportunity meets with planning” – Thomas Edison.

This year’s April tax filing deadline has come and gone. First, let’s take a moment to thank our accounting professionals. Their work is an incredible undertaking, and we appreciate their efforts.

Some of us may wonder, can I be better prepared for next year? The answer could be yes! Whether you filed your return by the deadline or filed for an extension, there are a few items to consider:

Did you owe or get a refund?

  • If you received a refund, the first question should be, why? For some, it could be more beneficial to adjust your withholdings to get a smaller refund and a larger paycheck throughout the year. Others prefer a larger refund as a form of forced savings.
  • If you owed, what caused this? Were your withholding elections too low to cover your tax liability? Did you have a large change in income? Those with employee stock plans should be mindful of tax implications and plan throughout the year for the taxes they may owe.

Did you pay an underpayment penalty?

  • If you paid an underpayment penalty, you are probably not withholding enough taxes throughout the year. It may be necessary to make estimated quarterly tax payments or increase your withholdings from your payroll to avoid or minimize these penalties. With the rise in interest rates, penalties may be significantly larger than they had been in a lower interest rate environment.

Why is your marginal tax bracket important?

  • If you are in higher tax brackets today, you may benefit more from tax-deferred savings (e.g., traditional 401k/IRA) vs. tax-free savings (e.g., Roth 401k/IRA) if you expect to be in a lower tax bracket later in life. The reverse might be true for those in a lower tax bracket today but expecting to be in higher tax brackets later. Optimizing your savings strategy may provide you with more resources in your financial plan.

Did you itemize or take the standard deduction?

  • The standard deduction is now at a higher threshold than in the past. Some potential deductions are not as valuable if you are not itemizing. There may be the potential to lump deductions within one tax year to reap extra tax savings (e.g., accelerate charitable giving in one year).

Were you tax loss harvesting throughout the year?

  • Tax-loss harvesting is when one sells a security at a loss. By “harvesting” this loss, investors can offset taxes on both gains and income. If losses for the year exceed gains, you may be able to “carry forward” these losses to apply toward gains in future tax years. This can help ahead of meaningful tax events or for rebalancing your portfolio to its target investment allocations.

Am I taking advantage of available tax-saving strategies?

  • Retirement savings contribution limits have increased for 2023, and if you have become eligible for catch-up contributions (beginning at age 50), you may be able to contribute more. Contributions to retirement plans (e.g., 401k) have increased to $22,500 in 2023, while catch-up contributions have increased to $7,500. It is a good time to check your contributions.

Summer will be here before we know it, so this is a good time not only to plan to optimize your tax strategy but also to take some much-needed time off. Setting aside time for the people most important to us and activities that bring joy can help put into perspective why we plan. Revolve is centered around empowering you to fulfill your goals and encourages you to schedule a time to explore new interests and experiences or create new memories with those most important to you.

As always, please feel free to reach out with any questions or thoughts you may have.

Your Revolve Planning Team

[email protected]