With the holiday season upon us, people are likely more concerned about trimming the tree than thinking of ways to trim their tax bills.
However, financial advisors urge clients to be proactive by doing some early tax planning. Advisors agree that the earlier you begin your 2014 tax planning, the more opportunities you may have to slash your taxes.
"Getting started early is perfect," said Sheryl Garrett, founder and CEO of Garrett Planning Network. "Some of the more sophisticated or involved things to do require advanced planning to make sure all the pieces come together."
Here are some tax tips that financial experts are discussing with their clients:
Assessing the tax picture: To begin your tax planning, consider whether any recent or upcoming changes in your personal or financial circumstances could have an impact on your 2014 tax situation.
Those changes can include marital status; new child tax credits; if you are now helping a child pay for college (which means college tax credits); and whether you will be claiming a tax credit for employment-related child care.
Deferring taxes on your income: Whether or not you are earning it now but paying tax on it later, it's essential to weigh the pros and cons of tax-deferring strategies.
For example, participating in an employer-sponsored 401(k) plan or similar retirement plan can be a tax-efficient way to put money aside for your future.
Experts also suggest that individuals may want to consider a Roth individual retirement account (IRA). Some 401(k) and similar plans offer a Roth IRA contribution feature. Roth contributions are made after tax, so there is no up-front tax benefit to making them.
Itemized deductions: Financial experts also work with clients on finding tax savings that are close to home.
For instance, individuals can itemize deductions for qualified home-mortgage interest and property taxes. Also, homeowners may be eligible for additional tax breaks when they sell their residences.
As a homeowner, you can include your property taxes with your itemized deduction for taxes. You also can deduct interest on debt incurred to buy, build or substantially improve your principal residence and one other personal residence.
The bottom line, financial advisors say, is that the sooner taxpayers understand their likely income situations, the more effectively they can address their tax liabilities.
It's best to start early, because one move can affect others, explained Lewis Altfest, chief investment officer of Altfest Personal Wealth Management. Altfest requests that his clients prepare their tax information early in the fourth quarter.