Proactive Tax Planning Starts with Goals

All planning – but especially tax planning – should line up with your goals. You should never do anything solely because you’re going to get a tax benefit. Rather, you should always do things that tie back to your goals, with tax benefits being an added bonus.

But when it comes to goals-based tax planning, it’s important to keep a few things in mind. First, we haven’t yet seen any legislation pass in Washington that might impact your taxes, but it’s important to stay informed about what’s going on. Second, because there hasn’t been any legislation passed, you should work with your financial professional on goals-based tax planning strategies based on the rules that are still in place. And finally, when it comes to tax planning, it’s key to stay proactive and flexible.

Let’s take a deeper dive into each of those things and how you can make the most of this tax season and proactively start planning for next year.

Keep an Eye on Washington

We still have the element of uncertainty when it comes to what exactly is going to happen with legislation that might impact your taxes. We don’t know when – or even if – the Build Back Better Act is going to pass. We know that it’s currently held up in the Senate and that if it does end up passing, it won’t be the version that we originally saw.

According to the Tax Foundation, there are a few elements in the Build Back Better Act that could potentially impact your future tax planning, including:

  • Individual income tax changes: Some of these proposed changes include a new surcharge on modified adjusted gross income – 5% on MAGI more than $10 million and 3% on MAGI more than $25 million. Also, the bill proposes to extend the American Rescue Plan Act Child Tax Credit through 2022 and make that credit fully refundable.
  • Pass-through business tax changes: The proposed changes here include expanding the 3.8% Net Investment Income Tax to apply to active business income for pass-through firms, among others.
  • Corporate and international tax changes: Proposed changes here include having a 15% minimum tax on book income for corporations with profits of more than $1 billion.

The key is to pay attention to proposed legislation without overreacting or taking drastic action based on what might happen. The goal of staying informed is to be prepared to act on any potential tax law changes. This is also why you should have a trusted advisor who can help you interpret the information and prepare you based on your unique situation.

What You Can Do Now

The first step in efficient goals-based tax planning is to identify and communicate your goals to your advisor. 

There are different things we can do as advisors to help you with tax planning throughout the year if we know your goals up front.

Especially since we haven’t seen significant legislation that will impact tax planning this year, we can plan for those goals in a tax-efficient way. Even if the tax laws do change this year, it will be hard to undo these strategies once they’ve been put in place. 

If you are looking to do a Roth conversion or a mega Roth conversion, now would be the time to do so, as potential legislation has put both of these on the proverbial chopping block.

If one of your goals is to focus on your estate planning and you’re considering a trust, get it set up now at the beginning of the year. You don’t have to fund that trust, but getting it set up now will be key – if you wait until the end of the year to find an attorney to set one up, they might not have the time to do it.

What strategy you take with your tax planning will center around any big things that will happen this year, like changing jobs, getting a raise, paying off debt, taking on more debt, having children or moving states, among others. Be sure to touch base with your financial professional if you experience any of these changes.

The Importance of Being Proactive

Keep in mind that simply filing for your taxes is not tax planning. Tax filing is looking back at the last year and reporting what happened, whereas tax planning is a proactive planning process for the year ahead.

Look back on your taxes from last year and review where you are now to see what you might need to be proactive about this and next tax season.

Proactive tax planning is always better than reactive tax planning. There are several ways you can proactively stay on top of tax planning.

First of all, you must keep good records. Know where all of your documents and paperwork are and keep them organized. Part of this is also gathering all your correct reporting forms – whether it’s 1099s, W2s, receipts from your charitable contributions or a record of all your IRA contributions.

Second, keep track of all your business and personal expenses.

Lastly, be sure to claim all the income that’s reported to the IRS to avoid issues, especially those 1099-MISC forms – even if it’s just a few bucks.

If you find yourself scattered and disorganized this year, use this as a catalyst to identify where you need to make some proactive change for next year’s tax planning.

Keep Your Advisor in the Loop

As tax planning is also part of your goals-based planning, it’s important to express your goals to your advisor and ensure you’re always working toward those.

Keep in mind that you don’t want to just give away assets or engage in any type of planning just for taxes. A trusted financial professional can help you plan in a way that moves you toward your goals. If you don’t yet have a trusted financial professional, get in touch with us today.


Converting from a traditional IRA to a Roth IRA is a taxable event.

Kevin Oleszewski is not affiliated or registered with Cetera Advisor Networks LLC. Any information provided by Kevin Oleszewski is in no way related to Cetera Advisor Networks LLC or its registered representatives.

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