How to Reduce Tax Stress

KURT C. GUTH, CISA | Corporate Officer | American Tax Service

For most of my clients, tax planning is not something they look forward to and I understand why.

I might advise an estimated tax payment, or anticipate a big balance owed because of rising income, investment gains or the sale of income-producing property.

Writing checks to the government just doesn’t feel good, but planning can help minimize that cost — or at least kick it down the road a ways.

It’s time to think about taxes. Again? Already? For the very first time?

I’ve often found the biggest benefit for clients is the stress reduction at tax time. It helps me, too! Surprising a client with a big tax bill is never ideal.

BE PROACTIVE

Tax planning is proactive.

It’s important for minimizing tax liability and maximizing benefits, reducing or eliminating penalties and interest, and achieving financial goals. It applies to businesses and individuals alike.

Moving into the fourth quarter of the year is the perfect time to avoid last-minute snap decisions or worse — missing out on opportunities to deduct expenses or invest in retirement vehicles.

The tax return preparation process is always looking at the past, but it should be a time to button up the numbers, not a source of regret. So when you can, save that regret for the entire bag of chips you ate, not financial situations.

Note that for tax year 2025, some of the recent tax bill’s provisions are retroactive to the beginning of the year. The three attention grabbers are the tax deduction on overtime, tips and Social Security. I won’t speak to these specifically, but please know there are qualifications and limitations on the deductions. This is yet another good reason to talk with your tax professional about year-end planning.

INDIVIDUAL TAX PLANNING

For individuals, planning can help you adjust withholdings to get you where you want to be in terms of a refund. A few years ago, the federal withholding form changed and taxpayers have been confused ever since. The old system tended to over withhold when selecting the filing status and adjusted in big chunks through allowances.

Now, it tends to under withhold and the taxpayer has to select the number of kids, whether the spouse works and whether there is additional income from a second job or significant investment income.

Furthermore, the old system is still in place for employees that haven’t switched jobs recently, so it adds to the confusion when changes happen. The IRS provides an online tool to help, and tax professionals can also run scenarios to help project year end income and potential amounts owed or refunds.

Running projections can also help you figure out whether you want to contribute more to retirement programs at work, a traditional or Roth IRA outside of work, or a college 529 plan for the kiddos.

One aspect of individual client tax planning is particularly satisfying – the year of retirement. Big changes happen in both directions. Wages decrease, pensions and Social Security increase, IRA conversions happen, RVs are purchased.

It’s a very exciting time, but very stressful for clients. Running projections on the year, and in many cases multiple years, helps the client reduce stress as things become known and they can see it working out. HR departments often won’t answer these questions for retirees, so having a tax professional with answers is a big relief during a big change.

BUSINESS TAX PLANNING

The benefits of tax planning for businesses are extremely important, especially if it’s been a good year. Quarterly reviews of the financials and projections through year-end help owners make informed decisions.

How will a new asset purchase affect taxable profit by deducting depreciation? Should I give bonuses or raises to my employees or even to myself? Can I offer more robust benefits to my employees and how does that help reduce taxable profit? Gaming out the year can help answer these questions so that owners can act with purpose.

An added benefit for business clients is not just from the tax perspective directly. A tax professional or outside accountant will often catch bookkeeping errors or compliance issues during tax planning since we don’t want to work from false assumptions and skew year-end projections. Identifying incorrectly classified transactions and discussing weird variances year over year, catching missing employee or contractor information, and unreconciled accounts and loans can all be time and money savers for business owners down the line.

TIMING AND PENALTIES

In the cases of both individuals and businesses, there are timing considerations. Some provisions have a December 31 deadline, such as depreciation on an asset or contribution to a college 529 plan.

Others can be handled in the first couple of months of the new year to affect the filing year such as an IRA, Roth or SEP retirement plan contribution. It’s a bit frustrating for the client and the tax professional to find out a good tax savings strategy can’t be implemented because it’s too late. I am constantly talking with clients about avoiding penalty and interest.

Here’s a fun fact: the current interest rate charged by the IRS is 7% and Kansas is at 9%. That’s a big increase in the last few years and it’s getting to be serious money when balances due are high.

We have a pay-as-you-go system, meaning that as you make the money, you owe the taxes at least quarterly. Planning and income projection can help get ahead of that. Since most of us file in the first few months of the new year, paying a balance due and still having to correct for the new year are financially and mentally difficult.

Seeing a client avoid that snowball effect because we did some early planning is pretty satisfying and many times I get an appreciation gift card to boot.

REDUCING STRESS

I’ve mentioned stress reduction quite a bit. It often really is about the stress of not knowing what’s coming. So, find out what’s coming so you can either change the outcome or see it manifest as you expected.

Do your own tax planning or consult with a professional before tax season, and I’d be willing to bet at least $1.34 that your experience is much more enjoyable — or less unenjoyable, depending on your perspective.

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