7 Steps You Can Take Now to Prepare for Tax Season

29 September 2014

Tax season may seem a long ways off, but don’t wait until then to create your tax plan! With the top federal tax rate pegged at 43.8% for the highest income earners and 23.8% for qualified dividends and long-term capital gains, now’s the time to make sure your tax planning strategy protects your assets.

The consequences of not planning effectively can be dire. For example, if you’re over 70½ years old and fail to withdraw your required minimum distribution (RMD) from your retirement account, the IRS will levy a penalty of 50% on the amount you didn’t withdraw.

Here are seven steps you can take now to help you save money before the end of the year.

1. Start planning now.

Proper planning prevents poor performance. Don’t wait until April to look at your tax situation. Contact us (or your CPA) in September or October and let us help you make strategic decisions today. Don’t wait for New Year’s Eve to call us to ask if you can buy a Suburban for your business and still get a deduction.

2. Make sure you’re taking advantage of any and every retirement plan that’s available to you.

Everybody’s situation is different, but you should still consider making the maximum contribution possible to a qualified retirement plan. Your contributions lower your taxable income while the earnings in the plan grow tax-deferred. Participants in 401K, 403B or 457B plans can contribute up to $17,500, plus an additional $5,500 if they’re over 50 years of age. Don’t miss out on your employer’s matching contribution—it would be like turning away “free money.” If you’re self-employed, you can contribute up to $52,000 to a SEP-IRA or $5,500 to a regular IRA.

3. Make sure you’re taking your required minimum distribution from your retirement plan.

We mentioned this in the opening, but it bears repeating. We’ll quote from the IRS’s own web site: “If an account owner fails to withdraw a RMD, fails to withdraw the full amount of the RMD, or fails to withdraw the RMD by the applicable deadline, the amount not withdrawn is taxed at 50%.” For high-net-worth clients, this could total hundreds of thousands of dollars. This is a penalty that’s completely avoidable—if you and your tax planning professional are paying close attention to your tax situation

4. Consider converting your existing IRA to a Roth IRA.

Currently there are no income limitations for converting your IRA to a Roth IRA. This tactic isn’t for everyone, but it might be worth exploring for your situation. When you convert an IRA to a Roth, you pay taxes at the time of conversion, rather than when you withdraw the money. Your money continues to grow, tax-free, until you decide to withdraw it, and unlike a traditional IRA, you can keep contributing to your Roth IRA for as long as you live. Thanks to the power of compounding, you or your heirs could end up with a sizable sum.

5. If you retire, convert your 401K plan into an IRA.

An IRA may give you more flexibility than your employer’s 401K, allowing you to exercise more control over your funds without being subject to the 401K plan’s rules and regulations. For example, if you’re married and participate in a 401K, you must name your spouse as the primary beneficiary. With an IRA, you can name anyone.

Similarly, in a company-sponsored plan, you can only invest in the investment choices that that plan makes available. But with an IRA, you can invest in any stock or fund you choose.

6. Take advantage of employer-sponsored flexible spending accounts (FSAs).

You can defer up to $2,500 of your salary (or $5,000 per couple), pre-tax, into a healthcare or dependent care spending account. Not only does this reduce your taxable income, but if you think you’re going to have expenses like orthodontia, you could be missing out on thousands of dollars if you don’t sign up for your FSA.

7. Give a gift of up to $14,000 per person, per year.

You can give a gift of up to $14,000 per year to another individual, up to $5.34 million, without having to file a gift tax return. Not only does this reduce the size of your estate, but it could also allows you to help someone close to you achieve financial goals like paying off student loans or making a down payment on a house.

The next step? Call us!

Take all of these tips as generalized advice. When it comes to tax planning, there’s no one-size-fits-all solution. Rigby Financial Group offers extensive services in the areas of tax planning for individuals and businesses. Please contact us for advice and assistance in creating a specialized plan that suits your particular situation.


The information presented here is not specific to any individual’s personal circumstances.

These materials are provided for general information and educational purposes based upon publicly available information from sources believed to be reliable—we cannot assure the accuracy or completeness of these materials. The information in these materials may change at any time and without notice.