How Do I Improve For Next Year?
🤑 Keeping More Money In Your Pocket
After 10 years of doing taxes, I have learned to read between the lines. The most common question I get is – “How do I reduce the amount of taxes I owe?”
What people are really asking is – “How do I keep more of my money?”
They are related, but separate questions. The reality for most people is that there are not a lot of ways to save on taxes outside of contributing to retirement accounts, BUT there are a lot of ways for people to keep A LOT more money in their pockets.
💸 Avoid unnecessary expenses
Have you heard the phrase – “To a hammer, everything looks like a nail” ? It resonates across everything. Don’t pay for things until they are needed.
LLC/S-Corp – will provide no tax benefits until you make north of $70,000 after expenses.
Start off as a Sole Proprietor and call your tax guy before setting one up.
CPA’s – will have high minimum fees. If your tax return is simple, be careful of the CPA that requires and engagement and minimum up front fee.
Financial Planners – Look for a Fiduciary who charges hourly, even if it’s high, over someone asking for a % of assets.
Last year, I had a new client who paid almost $4,000 for the year on the above. They had a simple small business & a SEP IRA. We reduced their total fees to under $1,000
🏝️ Maximize Retirement Contributions
You will hear me repeat this one a lot because it is the easiest way for most people to save.
If you have money left over at the end of the year, this is the best place to start.
Always max out employer retirement accounts first before contributing to your own Traditional IRA or ROTH IRA. (See the current 2026 contribution limits.)
Don’t contribute more than you can handle. Have a reserve account on hand. 6 months of daily expenses is good. If you take out retirement contributions early, you get penalized, and the tax benefit is gone.
There are two simple reasons for the above.
Company retirement accounts are better. They have larger contribution limits & usually match some of your contributions (Free Money). Access to company retirement accounts can limit the amount you can contribute to your own normal IRAs.
Contributions reduce income in your highest tax bracket. If you are in a 32% tax bracket, every $1,000 contributed saves $320 in taxes. That money grows tax free in a retirement account until you take it out. For most people, when you stop working, your income in retirement will drop. Therefore your tax rate will drop. So….
You save 32% when you contribute.
You grow your money tax free
When you take it out, you are in a lower tax bracket and likely pay at least 10% less than the year you would have contributed it.
🏥 Don’t Overlook the HSA
If you are on a high-deductible health plan, a Health Savings Account (HSA) is the most tax-friendly account there is – it is the only one that is triple tax-free. You deduct the money going in, it grows tax free, and it comes out tax free when you use it for medical expenses.
For 2026, you can contribute $4,400 (self-only) or $8,750 (family), plus an extra $1,000 if you are 55 or older.
Two things I tell clients: you do not have to spend it the same year you put it in – save your medical receipts and let it grow – and once you turn 65 it works just like an IRA for any expense, not just medical.
🎯 Avoid Penalties
This is the number one way I see the IRS take people’s money every year. Over 10% of our clients get hit with some type of penalty annually…
Failure to pay estimated taxes.
Underpayment penalties & interest.
Severe underpayment penalties
We send this e-mail out every year after tax season and at the end of the year. The government expects you to keep up with taxes through out the year. You either need to keep up or absorb the penalty at the end of the year. In most cases, the penalty is minor. If you don’t want to pay penalties, you need to overpay in advance. You can read more about estimated payments here – Estimated Payments.
If you owed last year or you are a high earner, spending a few hundred dollars on a tax consultation can save you thousands. Every year I see at least one penalty north of $10,000, and I have seen several north of $50,000.
👊 Select proper withholdings
This topic is the number one cause of owing every year. I have covered this topic in more depth here – WITHHOLDINGS.
A brief Summary –
When in doubt, select ‘Single-0’(even if you are married). This will default to holding more out of each paycheck.
If you are married, filing Married Jointly is better than filing Married Separately in 99.9% of cases. The main reason people file separately is because one person has a debt and the repayments are based on total income. Like Student Loans.
If you rotate dependents with another person, you need to update your W-4 between Single and H.O.H. annually.
Whoever prepares your taxes should be happy to run an estimator worksheet for you for $100 or so. Every year I review prior year returns where couples lost out on thousands because they filed themselves convinced separately was the way to go.
Improper withholdings can create significant balances due at the end of the year. Many clients will file an extension and owe penalties and interest on a balance due that they did not expect.
🍳 Keep It Simple
If you are taking the standard deduction, your taxes should be pretty straight forward. Don’t let a CPA convince you that you need to pay them $500 or more to do your return.
Read more about deductions here – STANDARD DEDUCTION VS. ITEMIZED DEDUCTIONS.
If you think you may itemize your deductions, keep track of the following…
Cash Donations
Non Cash Donations to Goodwill, Church or other – Make notes on the date of the items and what a realistic resale value is.
All medical expenses
Mortgage Interest
Property Taxes
Interest (not the entire payment) on your car loan IF…
You purchased it brand new. Used vehicles don’t qualify
The final manufacturing was completed in the US.
Otherwise, keep it simple, save your tax documents and file before the deadline.
You should only need planning if you have the following…
Stock Accounts – If you have over $50,000 in holdings it can be a good idea to find a financial advisor. “Stock Loss Harvesting” can reduce taxes when implemented properly.
Company Stock Options
Your own small business – You likely DO NOT NEED an LLC until you are making over $100,000 per year.
Rental Properties.
Partnership Interests in other companies.
If you fall into any of the options above, paying a one time consultation to a tax professional before the end of the year to make sure nothing is missed is a good idea.
🤔 Parting Thoughts
As always, thanks so much for reading! If you enjoy reading, please share these articles with anyone (subscribe here) that you feel might benefit.
If you have any additional questions, please reach out. We help individuals and businesses year-round with personal and business tax services.
Thanks,
– Taxman