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Tax Planning vs. Tax Preparation

Many people focus their attention on income tax preparation at the beginning of each year, prior to the annual April 15th income tax filing deadline. While filing income tax returns in a timely manner is certainly a prudent strategy, it is often too late to engage in any effective income tax planning, as the year for which you are filing your tax return has already passed! Income tax planning should be a year-round activity. Here are some items you may wish to consider for tax year 2013:

  • Ensure that you are on pace to make your desired level of employer-sponsored retirement plan contributions. For 2013, the maximum contribution amount to such plans is generally $17,500 per employee, plus an additional $5,500 for those who are age 50 or older. Additionally, many plans now offer the option to make contributions to a Roth account.
  • Verify whether you are eligible to make a tax-deductible contribution to a Traditional IRA or a contribution to a Roth IRA. You can contribute as much as $5,500 to such an account in 2013, plus an additional $1,000 if you are at least 50 years old.
  • Taxpayers in the 15% or lower federal marginal income tax bracket (taxable income of $36,250 or less for a single filer, or $72,500 or less for joint filers) may wish to take advantage of the 0% federal long-term capital gains rate. For example, a married couple with taxable income of $50,000 could realize up to $22,500 of long-term capital gains with no federal capital gains tax bill! However, please be aware that realizing capital gains may impact the amount of your social security which is taxable, and may impact eligibility for certain income-tested programs.
  • On the other hand, capital loss harvesting can be an effective income tax reduction strategy. Taxpayers are allowed to claim up to $3,000 per year in capital losses, in addition to washing out any realized gains, as a direct reduction in adjusted gross income. For a taxpayer in the 25% marginal federal tax bracket, a realized capital loss of $3,000 can reduce her federal tax bill by as much as $750.
  • Consider “bunching” or “prepaying” future charitable donations through the use of a donor-advised fund. Such a fund potentially allows a taxpayer to take an immediate income tax deduction this year for planned giving which may not occur until many years down the road.

Please consult your tax preparer and/or financial advisor to determine if any of the above strategies are appropriate for your overall financial situation.

With taxes, as in many other areas of life, a little bit of planning can go a long way. We encourage you to make tax planning a year-round activity, and not just the one hour per year you scramble to assemble your records for your tax preparer!

D_BowerDouglas J. Bauer, CFP® is a principal advisor at AllSquare Wealth Management, LLC. As part of assisting clients with their overall wealth management needs, AllSquare Wealth offers income tax planning and income tax preparation services.


AllSquare Wealth Management is a Federally Registered Investment Advisory Firm.
AllSquare Wealth Management, LLC is a registered investment adviser.


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