Let’s be honest, taxes are confusing, and most of us would rather avoid thinking about them until April rolls around. But here’s the thing: a little tax planning throughout the year can save you money and stress. According to a TaxEDU poll, most Americans are not only fed up with our federal tax code but are genuinely confused by it. You’re not alone in feeling overwhelmed. 

Here’s an interesting tidbit: the IRS reports that 56% of electronically filed returns in 2023 were prepared by professionals, while 44% were filed by individuals. That tells us something—most people recognize that they need help navigating this maze. 

What Exactly Is Tax Planning? 

Tax planning sounds fancy, but it’s really just coordinating your financial decisions to legally minimize what you owe the government. Think you don’t do tax planning? Think again. If you contribute to a 401(k) or put money in an IRA, congratulations—you are doing tax planning! 

The key is being intentional about it, especially when life pivots: a job change, selling your home, getting married, or having kids. These moments are perfect opportunities to reassess your tax strategy. 

Making Sense of Tax Brackets 

Here’s where things get interesting. The U.S. uses a progressive tax system, which means you don’t pay the same rate on every dollar you earn. For 2024, if you’re single, you pay 10% on your first $11,000, then 12% on income from $11,001 to $44,725, and so on up the ladder. 

What many people get wrong: earning more money does not push your entire income into a higher bracket. Only the additional income gets hit with the higher rate. So, when someone says, “I don’t want a raise because it’ll push me into a higher tax bracket,” they are missing the bigger picture. 

Let’s break this down with an example. Say you’re single and earn $60,000 in 2024: 

• 10% tax on the first $11,000 = $1,100 

• 12% tax on $11,001 to $44,725 = $4,047 

• 22% tax on $44,726 to $60,000 = $3,360 

• Total tax = $8,507 

Your effective tax rate? That’s $8,507 ÷ $60,000 = 14.2%. Notice how this is much lower than your 22% marginal rate because you’re not paying the highest rate on all your income—just on the top portion. 

This effective rate is what really matters in order to understand your tax burden and to make smart financial decisions. See the 2025 brackets in our Important Numbers for 2025. 

The Building Blocks of Tax Planning 

The tax code treats different types of income differently (because why make things simple, right?). It also varies based on your situation— for example, married couples get different treatment than singles, seniors get different deductions, and each state has its own rules to add to the fun. 

Key things to consider include: 

• Your various income sources and how much you’re earning 

• Retirement account contributions 

• Real estate taxes and mortgage interest 

• Business income and expenses 

• Investment gains and losses 

• Your age and employment status 

• Whether to itemize deductions or take the standard deduction 

Smart Tax Strategies That Actually Work 

Maximize Tax-Advantaged Accounts: This is low-hanging fruit. Contributing to a traditional 401(k) and IRA defers your taxes on those contributions until retirement.  Contributing to a Roth 401(k) and Roth IRA allows you to eliminate any taxes owed on the earnings of those contributions over time. 

Think Long-Term with Investments: Hold investments for more than a year to qualify for long-term capital gains rates which are typically much lower than ordinary income and short-term capital gains tax rates. 

Use Tax-Loss Harvesting: This fancy term just means to sell investments that are losing money to offset your capital gains. It’s like finding a silver lining in your investment mistakes—but remember, this only works in regular taxable accounts, not in your 401(k) or IRA. 

Be Strategic About Asset Location: Put tax-hungry investments like bonds in tax-sheltered accounts, while keeping tax-efficient investments like index funds in taxable accounts. 

An important thing to remember: don’t let “the tax tail wag the dog.” If you’re in your accumulation years and can maximize tax deferrals, focus on positioning your holdings for growth. Your risk tolerance should drive your equity percentage, not tax considerations alone. Don’t stress if you have some bonds outside your tax-deferred account or equities inside it—the goal is to put as much as possible into these accounts and invest for growth. 

Keep Your Records Straight 

Nobody enjoys paperwork, but staying organized throughout the year will save you major headaches at tax time. Keep receipts for potentially deductible expenses: business costs, medical expenses, charitable donations, and educational expenses. 

Pro tip: Use smartphone apps to photograph and categorize receipts instantly. Cloud storage keeps everything secure and accessible. The IRS recommends keeping tax returns and supporting documents for three to seven years, so create a simple filing system with folders for different expense categories. 

Make It a Year-Round Thing 

Effective tax planning isn’t a once-a-year fire drill. Review your situation quarterly to see if you’re on track with estimated payments and to identify planning opportunities. Year-end is prime time for accelerating deductions into the current year or deferring income to the next year. 

Mid-year checkpoints let you adjust withholdings if you’re getting a huge refund (essentially giving the government an interest-free loan) or owing a lot more than you expected at tax time. This is also when you should evaluate retirement contributions, flexible spending account usage, and potential Roth conversion opportunities. 

Your Next Steps 

Start by gathering this year’s tax documents—W-2s, 1099s, deductible expense receipts, and estimated tax payment records. Set up both physical and digital filing systems and create a dedicated email folder for tax-related correspondence. 

Then do a “tax opportunity audit” by reviewing last year’s return for missed deductions and planning strategies for the coming year. This might mean increasing retirement contributions, strategically timing large purchases, or adjusting withholdings. 

If your situation is complex or you’ve had major life changes, consider consulting a tax professional. Sometimes peace of mind and potential savings are worth the investment. 

Remember: tax planning isn’t about finding loopholes or getting too clever—it’s about understanding the rules and making them work in your favor. A little attention throughout the year can make a big difference in what you keep versus what you send to the government.  

SOURCES:  Investopedia 

Mosaic FI, LLC is a State of Illinois registered investment adviser. The opinions expressed herein are those of the firm and are subject to change without notice due to changes in the market or economic conditions and may not necessarily come to pass. Any opinions, projections, or forward-looking statements expressed herein are solely those of Jenifer Aronson and Leslie Meisner, may differ from the views or opinions expressed by other areas of the firm, and are only for general informational purposes August 25, 2025. 

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