Have you put taxes on the back burner since April 15 or earlier? Now that we’re nearing mid-year, it’s time to take another look. Wondering why we’re doing this in June or eager to see a preview of this year’s taxes? Rather than attempting to squeeze a year’s worth of tax changes into a month or two at the end of the year, planting a tax seed for yourself now allows time for it to grow all year long!

That’s right: Midway through the tax year is the perfect time to do some proactive tax planning and get a head start on what to expect for this year’s tax situation. With last year’s taxes likely filed and plenty of runway ahead, you have details to provide background, along with plenty of opportunities for strategic tax planning. Making timely changes now starts with a look back and a bit of tax planning.

Why Look at Last Year’s Taxes?

Looking back at your recently filed tax returns from last year can help you note changes for this year. Perhaps your income situation has changed due to a job shift, salary increase, bonus, or equity compensation. Maybe you’ve gotten married or have added to your family. Or you may have lost a family member, changing your tax situation in different ways. No matter the change, starting with your most recently filed tax return can provide a foundation that you can build on to understand what to expect this tax year.

Another reason to look at last year’s tax return in particular? Some significant tax changes took place partway through last year that extended back to the beginning of the year. These changes might have slipped past you and caught you by surprise at tax time earlier this year. Whether you’re just getting on top of them now or you’re enhancing your tax planning with them in mind, check out our blog, One Big Beautiful Bill: Its Tax Impacts and You. It can provide you with a better understanding of or a refresher on what’s changed so you know what’s ahead.

If you’re hoping to avoid missteps this year, you might also want to review another of our blogs, Pitfalls to Avoid Under the One Big Beautiful Bill Act. This article highlights some of the shifts that began last year and workarounds that you can use as you look for tax advantages now. 

What Is Tax Planning?

With your year-to-year changes noted, it’s time to look at opportunities that might be presenting themselves. Sure, you might want to do a little digging, but mid-year tax planning shouldn’t be too strenuous. And as I mentioned earlier, implementing tax planning now to make the most of these changes allows you time to take advantage of tax incentives throughout the remaining months in the year — rather than trying to fit everything into a small window at the end of the year.

You can start with your household income. With tax bracket shifts, you might fall into a new one. So estimate your total income for the year from your job, self-employment, interest, dividends, and the like. And don’t forget about income from equity compensation as well as capital gains! Also, look at deductions from income, like retirement plan and health savings account (HSA) contributions, capital losses, and taking the standard deduction or itemizing yours. Then check out tax credits for which you might be eligible. With everything compiled, glance at where it puts you tax bracket-wise. This is a quick indicator of where you might land this year. 

Proactive Tax Planning Moves to Make Now 

Knowing where you stand can help you get ready to make tax-savvy moves. If your actual income has increased, it may be a good time to review opportunities to reduce your taxable income. 

For example, you might not have increased your 401(k) or health savings account (HSA) contributions after the maximums increased earlier this year. Boosting them in November or December could mean a more drastic reduction in income that you weren’t prepared for. That could be especially meaningful as you prepare for the holiday season later this year. 

Upping your contributions from now through the end of the year, however, could get you to that maximum. It spreads contributions out among the more than a handful of paychecks still coming your way this year. It also has a smaller effect on the income you receive each pay cycle. Plus, since these contributions are pre-tax, you’re taking a tax break on every dollar contributed.

Another important item to review is whether it would be in your best interest to change your tax withholding or make quarterly estimated tax payments. The former is as simple as updating your Form W-4 with your payroll or human resources department. For the latter, chat with your tax preparer, especially if they didn’t work with you on a plan to make these payments this year. Don’t give the IRS an interest-free loan via estimated payments unless it helps you avoid a penalty.

Other Ways to Lower Your Taxable Income

Aside from pre-tax savings or simply earning less, other ways to lower your taxable income exist. Two main forms are taking itemized deductions and making charitable contributions. Another is deferring income. 

Charitable Contributions

You might be asking, “Aren’t charitable contributions one of the types of items you compile for your itemized deductions?” Yes and no. Those who are particularly philanthropic might itemize their deductions on an annual basis because of their regular large donations to charity. If you don’t give big gifts annually, you might “bunch” deductions that you’d otherwise give in future tax years into this one — or you might have been saving your donations from the past few years to make a big impact this year. After all, your itemized deductions have to exceed the standard deduction for them to make sense.

A big opportunity for those with appreciated stock — whether employer stock from equity compensation or regular investments you’ve been holding on to — is giving it to charity. You avoid capital gains on the sale of this stock while your chosen charity sells and receives the entire proceeds to further their mission. You might not actually complete a donation of appreciated stock until your tax projection solidifies closer to year-end, but formulating a plan now that you can finalize later can also clarify your potential path ahead and help you avoid a year-end squeeze.

What if you’re not planning to make this year a big charitable giving year? If you’ll be taking the standard deduction, you can take an above-the-line deduction of $1,000 for individuals and $2,000 if you’ll be filing taxes jointly.

Deferring Income

Beyond common options like traditional 401(k), traditional IRA, and HSA contributions are additional methods of deferring income. A big one for high earners is the non-qualified deferred compensation (NQDC) plan. 

If you’re eligible for your employer’s NQDC plan, this may present another opportunity to at least shift taxation to a future year, which results in tax savings today. Plus, you can invest it for growth potential. 

Often used as a retirement savings vehicle, it’s not limited to this purpose. Although similar in some ways, the key difference between deferred comp and a 401(k) plan account is that the former is a part of the employer’s balance sheet; a promise to pay that income in the future. Business size and strength could be a factor in your participation. And while you’ll kick the federal and state income tax can down the road, at least until you receive the compensation, you’ll still pay Social Security and Medicare taxes on these dollars.

If you’re expecting your tax situation to be similar to previous years or full of changes, mid-year is a great time for a review. Whether you’re DIY-ing your tax projection or we’re taking care of it for you, make the most of it by giving yourself plenty of time to incorporate tax-savvy strategies into the months ahead.