Tax Projections and Planning
Tax planning and projections are most useful, and sometimes absolutely necessary, when something in your life or world brings about a change in your income.
Because changes in your income also mean changes in your taxes.
Whether you’re starting a new and exciting job or business venture, receiving a significant raise, moving, retiring, receiving an inheritance, welcoming a new baby or child into your life, sending a child of yours off to college, a child is graduating (from high school or college), or your income changes for some other reason, that income change may impact your tax projections. You need to be able to plan for those changes, brace for impact, and understand how these changes will impact your financial life.
What's included with my tax return?
A tax return is never just a tax return. When we prepare a return, we’re also looking forward at least a year, if not two or three, at what could happen and what you might need to do.
Your tax return preparation includes any required safe harbor estimted tax payments (see below).
We’ll also let you know about any tax planning strategies that may be advantageous to you as well as projected changes you might expect in the coming year.
Depending on the specifics of the change, we may have recommendations for you for hte coming year. You should review your Delivery Letter for specifics.
What are, "Safe Harbor," estimated tax payments!?
Taxes are due every April 15th (holidays and weekends may cause this date to vary and some states may have a different due date).
Even though taxes aren’t due until April 15th of the following year, the IRS and state and local tax agencies expect to receive tax payments from you throughout the year.
If you’re an employee, this is often taken care of through withholding, and you never really have to think about it.
But, if you are a high income earner, have multiple jobs and/or are married filing joint and both spouses work, have other income (think investments, real estate activity, crypto currency activity, gambling activity, and more) or are a business owner, you may also need to make estimated tax payments.
Yes, estimated tax payments may be required. You might owe estimated tax payments for the next tax year if your tax due on 4/15 for the previous year is more than $1,000. But how much do you pay!?
Here’s where the term, “Safe Harbor,” becomes important. Safe harbor is a guideline to protect you from penalties for underpayment of estimated taxes. There are two safe harbors for federal taxes:
- 90% of the current year tax (requires predictions that aren’t always reliable)
- 100% (or 110% if your Adjusted Gross Income is over $150,000) of the prior year tax.
When it comes to estimated taxes, current year might also be called next year. At Crayon Advisory, we tend to use the term, “Advisory Year,” because it’s the year we can provide proactive advice on. Prior year is the tax year being prepared (which may also be called the current year because it’s the current tax return being prepared).
Confused? It’s okay. We are sometimes, too. We’ll be sure to use the actual four number tax year when preparing this for you.
When your tax return (and extension as applicable) is delivered to you, it will include applicable safe harbor estimated taxes based on what we know when the return is prepared.
I know my income is changing for next year (this year? it's all very timey-wimey). Will you provide me with updated estimated tax payments?
This answer is a little bit harder becuase it depends.
If your projected and expected changes to your income are known and straight forward, then, yes, we’ll update your projeted income for the next year during tax return preparation. These changes may include:
- A known raise or bonus or salary as a result of a new job;
- A known change in capital gains for a known or expected sale in the Advisory Year or a sale in the Tax Year that won’t repeat in the Advisory Year
- Something else that is known and with already defined dollar amounts.
Tax return preparation does not include deep projection analysis or tax planning.
What is a Tax Projection?
Tax Projections are a separate engagement we offer in which we’re answering the question, “how much,” for the future.
We’ll ask a few questions and gather a bit of information. Then we’ll do some work behind the scenes. And finally, we’ll help you understand what the future might hold for your tax situation.
Tax projections are relatively straight forward. They’re transactional. They’re just asking the question: how much tax given these dollars. In a lot of ways, they’re like a less intense tax return.
They may not answer all of your questions. Before we get started on a tax projection, we’ll make sure your biggest questions fit within the scope of the projection.
What is Tax Planning?
Tax Planning can be so many different things. At the heart of it though, during tax planning, we’re asking the questions how much and what if?
Usually during tax planning, we’re looking at a minimum of two scenarios in which there are one or two variables changing. How much if I sell this piece of real estate? Or how much if I donate $X versus $Y. Or how much if I retire this year versus in two years?
And, yes, during tax planning we’re also usually looking at multiple years.
We’re likely to review different tax strategies you can take advantage of (even a few you may not be aware of) and provide you with information on those mechanics. We may also provide you with advice on certain decisions you may need to make (or not make) as the case may be.
Tax Planning may start as a tax projection, and it may start as a question from you. We’ll start by asking questions about what you need and want to do and then prepare an engagement with a scope suited to fit as best as possible.
How much will this cost me?
That depends on you, your tax situtation, the scope of your Advisory Engagement, and how much we’re trying to plan for.
Current client tax projections start at $225 per updated projection. When we prepare an updated projection, we provide updated estimated taxes for the remainder of the year. You may prefer to have two or thre updated projections in a year. Or just one. And some years you may not need or want any at all.
New client tax projections usually start at a minimum of $650 for the first updated projection.
Tax planning usually starts at a minimum of $425 for returning clients and $850 for new clients.
The cost of your tax planning or projection will be provided to you at the start of the engagement. Current clients also get a starting point for both planning and projections quoted during tax return preparation.
Quotes provided here are starting quotes for calendar year 2025. Your quote may vary.
Do I need this?
We won’t require most people to enter into a planning and/or projection engagement in most instances.
We will often make the option available to you. We may even strongly encourage you to opt-in to one of these engagements. It’s rare that it is a requirement (S-Corporation Elections and Business Startup/Purchase/Sale are good examples of when tax planning either is or effectively is a requirement).
There are some questions we cannot answer without preparing actual analysis, which we do charge for. This is not always the news you want to hear, and we undersandt he frustrations that come with this news.
Tax planning and projections can be informative and enlightening. They’re not always the right fit. When we start these kinds of engagements, we always start with recommendations and options for the type of engagement that will best suit your needs.
We love supporting our clients in their decisions in the best way possible. We’re not super big fans of over-selling you on services, tools, functions, or processes you don’t need or that are unlikely to have any benefit to you. We don’t make big grandiose promises on the taxes we may be able to save you with tax planning. If we can save you dollars by implementing certain tax strategies, we’ll do everything we can to save you as much as possible.
Strategy and plan implementation is always up to you. We’re here to help guide and support you in implementation, but, ultimately, we can’t click the buttons for you.
This post has been developed as a generic explanation of tax planning and tax projections. This information is written to be informative and is not tax advice. You should consult with your tax advisor as to how this information applies to your situation. Your specific needs may vary and may cause specific attention to need to be given to your processes. You should speak with your tax professional regarding the applicability of these issues to you and your business (and, yes, that includes Crayon Advisory if you are a current or onboarding client).
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