What is tax planning?

1 min readLast updated March 8, 2024by Unbiased team

Learn all about tax planning and how to effectively and legally reduce your tax burden.


  • Tax planning is financial planning pertaining to tax management and tax minimization.  

  • There are several basic tax planning strategies to choose from, with pros and cons to each.  

  • Tax gain-loss harvesting is a useful strategy for managing taxes as it uses investment portfolio losses to offset capital gains.  

  • A financial advisor can help you develop a robust tax plan that includes tax strategies to reduce your tax burden and allow you to keep more of your hard-earned money.  

What is tax planning? 

Finding ways to reduce your tax burden is a good strategy for making better long-term savings and organizing your financial records. This is where tax planning comes in. 

Tax planning is a type of financial planning strategy that involves finding ways to pay the lowest amount of taxes possible while still meeting your legal tax liabilities.  

It can refer to organizing the tax side of your finances and ensuring that all of your tax payments are up to date and in accordance with the fiscal year.  

In some cases, it may refer to an established agreement with the IRS to pay your taxes within a specific time frame.  

Having a tax plan is also an essential aspect of a long-term investment strategy. To reach future financial targets and build wealth over time, a solid plan for tax reduction and management is crucial.  

Regardless of why it's in place, a tax plan can help put you in a better position for making investments and increasing the rate of your wealth-building over time.  

An expert, regulated financial advisor can help you develop a robust tax plan that includes tax strategies to reduce your tax burden and allow you to keep more of your hard-earned money.  

How does a tax payment plan work? 

A tax payment plan is a plan that helps you organize your tax affairs in a structured and strategic way.  

This type of plan makes it easier to pay what you owe over time without missing any tax year deadlines or paying unnecessary penalties.  

What are some basic tax planning strategies? 

There are many different ways to approach tax planning, and none of them are overly complicated.  

Let’s look at some basic tax planning strategies for saving money and reducing the tax burden: 

  • Contribute to retirement plans: Contributing to your retirement plan, especially a 401(k), as an older employee is one of the easiest ways to reduce your tax burden.  

  • Take advantage of tax credits: There are certain tax credits (such as disabilities, connection to a charity, medical expenses, and union dues) that warrant tax reductions.  

  • Make tax deductions: Income insurance policies, medical expenses, and charitable contributions are just a few examples of common tax deductions that everyday earners use to minimize their tax burdens.  

Can I contribute to an IRA and a 401k to reduce taxes? 

Yes, you can reduce taxes by contributing to both an IRA and a 401(k).  

However, if you do, it is essential that you only contribute within the amount legally allowed per year.  

If you invest in both a regular IRA and a Roth IRA, the total contribution limit for the 2024 tax year is $7,000 for those under age 50 and $8,000 for those 50 and older.  

What is tax gain-loss harvesting? 

Tax gain-loss harvesting is a variation of tax planning that relates to investment planning.  

It is advantageous because it uses investment portfolio losses to offset capital gains, making it a useful strategy for managing taxes overall.  

The IRS states that long and short-term capital losses and gains need to belong to the same category to be considered feasible.  

How do high-income earners reduce their taxes? 

High-income earners have more excess income to work with, but that sometimes comes at the cost of higher taxes.  

If you are a high-income earner, implementing a tax plan aimed at reducing taxes is an effective way to continue building wealth and protecting your assets over time.  

This can be achieved with: 

  • Qualified Charitable Distributions: QCDs are distributions from traditional IRAs owned by individuals over the age of 70. They allow you to contribute money to charitable organizations like churches or NGOs completely tax-free.  

  • Health Savings Account Distributions: HSAs are triple-tax-advantaged because they are tax-free, facilitate fee-free withdrawals, and allow for high contribution limits if you are over 55. 

  • Retirement Plan Contributions: Many organizations offer qualified savings retirement plans for employees that are tax-free to attract talented professionals. These plans are one of the easiest and most accessible ways to reduce taxes, as they do not even appear on your tax return.  

Get expert financial advice 

Tax planning and financial planning are extremely important for any person who wants to maintain control over their financial affairs.  

Any earner can follow a sound tax plan by adopting strategies for tax reduction, taking advantage of tax credits, and contributing to specific distributions.  

To find out more about tax planning and reduce your tax burden, let Unbiased match you with an expert financial advisor. This will ensure that you can create a tax payment plan that suits your needs, financial situation, and lifestyle.

Find a financial advisor now


Unbiased team

Our team of writers, who have decades of experience writing about personal finance, including investing and retirement, are here to help you find out what you must know about life’s biggest financial decisions.