As the new school year begins, most people are not thinking about taxes. Focusing on fall sports or the rapidly approaching holidays is certainly more fun. However, September is an ideal time to get ahead of next year’s tax bill.
September—after summer vacation but before the year-end rush—is one of the best months to conduct personal tax planning, and here’s why:
- You have sufficient information. By this point in the year, you have plenty of data about your income, investment gains or losses, and significant expenses like education or medical costs. You’re also aware of potential life changes, such as getting married/divorced or expecting a new child. By September, you’re no longer estimating the year; you’re armed with information to project the final quarter more accurately.
- Changes can still make an impact. If you’re hoping to affect next year’s tax return, changes made at year-end are often too late to make a meaningful difference. With four months left in the calendar year, September affords you the flexibility to adjust payroll withholdings, increase estimated tax payments, or conduct tax-loss harvesting. You can also make plans for charitable giving and maximize the benefits of health savings or dependent-care accounts.
- You’re not in a hurry to make decisions. At the end of the year, most families are bombarded with work and family commitments. They are strapped for time and cash amidst the holiday season. Tax planning is a thoughtful and strategic exercise that requires careful consideration and shouldn’t be rushed. Before the craziness of the fourth quarter arrives, take time to identify your priorities, gather important documents, and consult with a financial professional.
- It will help you get organized. Speaking of gathering documents, proactive tax planning creates better records before tax filing season rolls around. It helps you collect digital or physical statements, so you can support where you thought your finances stood with hard facts. If you own a business, September is also a valuable time to reconcile income and expenses while you still have the benefit of memory on your side. By March or April, you could have missed records or lack clarity on past transactions.
- You can connect tax planning to bigger financial goals. Tax planning is ultimately about understanding and minimizing the tax implications of financial moves you make—or avoid. Pursuing goals for retirement, education, or investments is ultimately more important than a single year’s tax bill, but if strategic decisions can reduce taxes in the short term without undermining a long-term objective, that’s a move worth making.
Now that summer is behind us, you have enough data to make informed projects, but the year is not so far gone that your options for impact have disappeared. This September, conduct a small amount of tax planning, so you can have a calm close to the year and an easier tax season next spring.