Considering Taxes throughout the Year

Apr 2016

By now, most of us have filed our 2015 tax returns and thus, we can forget about taxes for another year. That would be nice if it were true, but it’s not. Unfortunately, taxes are something we must be aware of 12 months a year, not just when we are file our tax returns. That doesn’t mean we want to let the tax tail wag the dog by making everything we do dependent on taxes; rather; we want to be smart and efficient when it comes to our taxes. In that regard, it is always important to remember that from a financial standpoint your goal is not to lower your taxes but rather, to have more money in your pocket. Lowering your taxes doesn’t necessarily accomplish that.

One of the things everyone needs to have in place is some sort of tax record- keeping system. Unfortunately, too many people wait until they receive their 1099s and W-2s to set up a record-keeping system. As far as I’m concerned, you need to have a record-keeping system in place so that throughout the year if you have documentation that relates to your taxes, you’ll know where you’re saving it. Unfortunately, when people don’t have a record-keeping system in regard to preparing their tax returns, they panic; ultimately, they potentially lose out on some valuable deductions or credits. That is why it’s important to have a record-keeping system in place now. What type of record-keeping system — that all depends upon you. Some people are very good with technology and everything is saved electronically, while other people are a little more old-fashioned and like saving the physical item. It really doesn’t matter as long as you have a record-keeping system that works for you. Don’t wait for the end of the year to start a record-keeping system. You should already have one in place and if not, now is the time to do it.

You should also be aware that throughout the year you can experience life changing events that can impact your taxes. For example, if you get married or divorced during the year it could have a major impact on your tax situation. When you have an event such as the aforementioned, it is important to consider the impact it will have on your taxes. For example, if someone got married during the year, their tax status would change from single to married and that can have all sorts of implications on withholdings and deductions. It is important to determine how these events will affect you and then make adjustments accordingly. Of course, that doesn’t mean you let taxes make these decisions, but you recognize that as your life changes, so do tax rules that affect you.

It is also important to recognize that even though we file our tax returns once a year, our taxes are actually due on a quarterly basis. Therefore, it is always important to monitor your withholdings and estimated tax payments so you’re not subject to penalties at the end of the year. It is also important that sometime throughout the year you consider whether you should do a Roth conversion. Whether you are working or retired, Roth conversions are something that everyone should consider. After all, if you can turn tax-deferred money into tax-free money, why not.

Tax rules and implications also come into consideration for example when you make charitable contributions. For many people, as opposed to just writing a check it may be more efficient to donate appreciated securities. The benefit of donating appreciated securities is that you still receive a charitable contribution for the fair market value of your contribution and you avoid paying the taxes on the unrecognized gain. By being aware of taxes it allows you to keep more money in your pocket where it belongs.

The bottom line is we must be aware of taxes 12 months a year. Our goal is not to let taxes dictate everything but rather, to take advantage of the tax law where it helps us. Unfortunately, if you only think about taxes when it comes to filing your tax return, you won’t be able to take advantage of these opportunities. Therefore, even though we have filed a 2015 tax return, it doesn’t mean we can forget about taxes for another year. If you believe as I do, that it is not more patriotic to pay more money in taxes than you have to, you must at least consider taxes and their ramifications throughout the year.

Good luck!

Rick is a fee-only financial advisor. His website is If you would like Rick to respond to your questions, please email Rick at