An estimated 90% of Americans do not understand the basics of their tax return.¹ As a result, the majority are likely missing out on opportunities to save thousands of dollars in taxes.
This is where effective, annual tax planning becomes essential. With the right strategies, you can potentially save tens or even hundreds of thousands of dollars over your lifetime.
What Is Tax Planning?
Put simply, tax planning is the process of strategically using your finances to minimize the amount of taxes you pay. It can be applied over various timeframes—from a single year to multiple decades.
Let’s look at an example focused on charitable giving.
Case Study: Charitable Tax Planning
Meet Hector, a fictitious client. He’s a professional in his 30s, earning $140,000 annually. He lives in Washington State, rents an apartment, and has minimal medical expenses due to his good health. He donates $14,000 each year—half to his church and half to various charities he supports. He also pays about $1,827 in sales tax annually and keeps diligent records.
Typically, Hector itemizes his deductions:
Charitable giving: $14,000
Sales tax: $1,827
Total itemized deductions: $15,827
In 2024, the standard deduction was $14,600, and in 2025 it increases to $15,000. Since his itemized deductions exceed the standard deduction both years, itemizing made sense for him. A quick note, if your itemized deductions end up being less than the standard deduction, you can claim the higher amount.
With some strategic planning, we can improve Hector’s tax outcome.
The Strategy: Bunching Charitable Contributions
Let’s keep his church giving consistent because it will benefit more from that. However, we’ll “bunch” two years' worth of other charitable donations into 2024 and make none in 2025. Here’s how it plays out:
With Tax Planning Strategy
2024
Church: $7,000
Charities: $14,000
Sales tax: $1,827
Total deductions: $22,827
2025
Church: $7,000
Sales tax: $1,827
Deduction: Standard deduction = $15,000
Total deductions over two years: $37,827
Without Tax Planning Strategy
2024
Church: $7,000
Charities: $7,000
Sales tax: $1,827
Total deductions: $15,827
2025
Church: $7,000
Charities: $7,000
Sales tax: $1,827
Total deductions: $15,827
Total deductions over two years: $31,654
The Result: $6,173 More in Deductions
This strategy results in an additional $6,173 in deductions, which translates to approximately $1,481 in tax savings—without changing Hector’s total giving in those two years.
The only thing that changed was the timing.
This is the power of strategic tax planning. I use strategies like this to help clients potentially save thousands on their taxes.