Tax Planning & Strategy

Each year, April 15th arrives, and the Internal Revenue Service expects to see your tax returns. You want to pay the taxes you owe, but you don’t want to pay any more than you absolutely need to spend.

During the year, you save receipts and contribute to your final tax bill in each pay period. However, there is more you can do. If you want to pay only what you’re legally obligated to pay, you need tax planning and a tax strategy.

What Is Tax Planning?

Tax planning looks at your financial situation and takes all of your expenses and investments to ensure that you’re paying as little as you can in taxes each year. You don’t want to wait until the end of the tax year to start thinking about ways to lower your tax bill.

Tax planning ensures that you have all the pieces in place to save you as much money as possible. Some tax planning considerations include:

  • The timing of your income.
  • The amount of income.
  • The timing of purchases, especially large purchases.
  • The timing of expenditures.

These might seem like simple things, but planning the timing of receiving income, making purchases, and paying expenditures can make a difference in your tax liability each year.

Tax planning is essential when you’re saving for retirement. You need to understanding your retirement savings options to make the best decision for the present and for the future.

What Is A Tax Strategy?

Everyone wants to pay less in taxes, but a tax strategy is a plan designed on your unique situation to ensure that you pay as little as possible in taxes each year while remaining inside the tax laws. It’s an action plan that accounts for your income, expenses, and deductions to make sure that you’re realizing the most tax benefits that you can in the way you receive or pay monies.

A tax strategy takes into account:

  • Your income.
  • Your spending habits.
  • Donations to charitable entities.
  • Your tax brackets.
  • Your possible deductions.

Tax planning looks at what you’re going to pay in taxes this year or next year while a tax strategy looks at the long game. You need a tax strategy to meet your long-term goals and to ensure that you aren’t paying more in taxes than you should.

What Time of Year Should You Be Doing Tax Planning and Strategy?

You need to know when you need to start tax planning and developing a tax strategy. It’s a good idea to meet with your financial planner and certified public accountant (CPA) at the end of each year. You want to start off the year making smart decisions that leave you in a position to pay the least amount in taxes possible the following year.

Throughout the year, things might come up that you hadn’t planned for or known about in your planning and strategy sessions. You might need to buy a car unexpectedly or need some sort of medical procedure.

If you think it’s an issue that’s large enough that it could affect your tax liability, it’s always a good idea to meet with your financial planner and CPA again for advice on the best way to adapt these unexpected items to your current plan and strategy.

Understanding Your Tax Bracket

The IRS determines the percentage of your income after allowed deductions that you’re going to pay based on your income. In 2021 for taxes owed in 2022, there are seven different tax brackets.

Your filing status and your income determine your top tax tier . Low-income earners may pay a smaller percentage than high-income earners.

Sometimes, earning more income or taking advantage of deduction can alter your top tax bracket. When your income changes, or you think you’re about to do something that can be used as a deduction, it’s beneficial to discuss these changes with your financial planner and CPA.

The percentage and the brackets are subject to change at any time. Congress may even make retroactive changes that could change your top tax bracket.

Standard Deductions Vs. Itemizing

When filling out your tax forms each year, you need to choose between taking a standard or itemized deduction. The Internal Revenue Service (IRS) allows you to deduct either a set amount from your income before figuring your taxes or itemizing certain deductions to determine the taxable income.

Some common itemized deductions include:

  • Expenses for medical and dental care.
  • Interest paid on a home mortgage.
  • Taxes paid to the state and county.
  • Donations to charity and other non-profit organizations.
  • You want to choose the option that gives you the lowest taxable income. Your financial planner and CPA can advise you on your options.

Take Advantage of Special Deductions

From childcare to home office,, there’s a cornucopia of deductions that may be available to you to lower your taxable income. However, the tax code is a massive and constantly changing document that can make it difficult to understand.

When you work with your CPA on tax planning and creating a long-term strategy, they can help you take advantage of all the special deductions that you qualify for each year and place you in a position to qualify for these deductions in future years as your situation changes.

401Ks, IRAs, HSAs

There are some savings accounts that you can contribute to for retirement or healthcare expenses that lower your taxable income. Some are tax-advantaged accounts, which means that you don’t pay taxes on the income when you place it into the account, but you do pay taxes when you take it out. Here are a few:


As an employer-sponsored retirement account, a 401K allows you and your employer to place money into the account that you can then invest for retirement.


An Individual Retirement Account (IRA) allows you to create your own investment account for retirement. However, there are limits as to how much money you can deposit each year.


A Health Savings Account is for people with insurance policies with high deductibles. You use the funds from the account to meet the deductibles. It’s a tax-advantaged account, but if your medical expenses are high enough, you might be able to itemize your deductions.

Tax planning and strategizing are the best ways to meet your legal obligation to pay taxes without paying more than you should. At McNurlin Hitchcock, our team of CPAs is experienced at helping people like you pay only what they need to pay to the IRS. Contact us today to learn more or schedule an appointment.