@#$%&! Taxes
How to Reduce Tax Anxiety—and Avoid Surprises at Tax Time
There are very few tasks that are as universally disliked as tax prep. It doesn’t help that tax season lands right in the middle of Spring, when the weather is warming up, and, especially for those who have severe winters, the urge to get outdoors and enjoy the warmer weather is strong. No, instead, you have to sit down and gather all the documents to send to your accountant, or boot up TurboTax to do it yourself. It’s just cruel.
There are many reasons taxes are anxiety-provoking, but a big one is simply not knowing whether you’ll owe money. I think very few people are sure about this and are either upset or relieved when they or their accountant figures it out. Another is that the IRS has developed an onerous reputation of being overly punitive, and we all live in fear of making a mistake on our taxes and getting a gigantic tax bill.
A couple of years ago, due to major improvements in tax planning software and recognizing how much my clients may value it, I added the service of preparing tax projections for them each year. I am not a tax preparer, but I would argue that the service I provide is just as valuable. First off, I do it before the end of the year, when actions can be taken to increase tax withholding or estimates, if necessary, or to implement tax-reducing strategies. After December 31st of the tax year, nothing can be done to change the tax outcome.
In the spirit of helping to reduce your tax anxiety, I will share some of the key items I look at when doing mid-year tax projections and some strategies to help you reduce your tax bill.
1. I look at pay stubs to see if too little or too much tax is being withheld.
It’s better to be just right because you could pay a penalty if too little tax is taken out during the year, and if it’s too much, yes, you will get a refund, but you lose the ability to use that cash during the year.
This applies not just to wages, but also to pension income. In fact, pension withholding is often more likely to be off because people don’t revisit their elections after retirement.
If you want to do a quick check yourself, pull out your most recent pay stub (or pension statement) and look at your year-to-date federal withholding and your year-to-date income. A rough rule of thumb is that your withholding should be in the ballpark of your expected effective tax rate. If you’re in a higher income bracket and only 10–12% is being withheld, that’s often a sign you may come up short.
One more important wrinkle: Social Security does not have taxes withheld automatically. You have to elect withholding (using Form W-4V), and many people don’t—especially in the early years of retirement. That can quietly create a tax bill if you’re also receiving pension income, IRA withdrawals, or investment income.
For a more precise answer, the IRS Tax Withholding Estimator is actually quite good. It walks you through your income, deductions, and credits, and tells you exactly how to adjust your W-4 (or W-4P for pensions). It’s not something most people are excited to do—but it can save you from an unpleasant surprise in April.
That works well for people with withholding—but not everyone has that built in. Read on.
2. Self-employment income is a bit trickier.
Unlike a paycheck or pension, there’s no automatic withholding—so you have to be more intentional. Not only are you responsible for income taxes, but you are also responsible for self-employment tax (Social Security and Medicare), which can take people by surprise. I often see this with high earners who are used to being W-2 employees—when they shift to self-employment, they don’t realize how much more needs to be set aside.
The general rule is that you’ll need to make quarterly estimated tax payments throughout the year. A simple way to stay on track is to set aside a percentage of each payment you receive—often 25% to 35%, depending on your income level and state. It doesn’t have to be perfect, but it should be consistent. If your income is uneven (as it often is), you can adjust as the year goes on rather than trying to get it exactly right upfront.
If you prefer something more precise, you can base your payments on last year’s tax (the “safe harbor” method) or project your current year income and calculate estimates accordingly. The key is not to wait until April—because that’s when self-employed taxpayers tend to get the biggest (and most stressful) surprises.
3. I check whether retirement savings are being maximized.
This is one of the most powerful ways to reduce taxes—yet it’s often underutilized or revisited too late in the year. For employees, that means making sure 401(k) (or 403(b)) contributions are on track to hit the annual limit, and for those over 50, taking advantage of catch-up contributions.
There’s also an important decision between pre-tax and Roth contributions. Pre-tax reduces your taxable income today, while Roth contributions don’t—but can provide tax-free income later. The right choice depends on your current tax bracket versus where you expect to be in the future, and it’s something worth being intentional about rather than defaulting.
For those who are self-employed, there’s even more flexibility. Options like a Solo 401(k) or SEP IRA, a Defined Benefit Plan, or a Cash Balance Plan allow for significantly higher contributions. And unlike employees, who generally need to make their contributions by year-end, self-employed individuals often have until their tax filing deadline—including extensions—to fund the employer portion. That creates a valuable window for tax planning after the year is over.
The key is being proactive. These contributions don’t happen automatically—you have to plan for them. Done right, this can both strengthen long-term financial security and meaningfully reduce your current tax bill.
4. I look at charitable giving.
I start by understanding how much a client wants to give to charity in a given year, and then we discuss the most tax-efficient way to do so. For example, instead of writing checks, donating appreciated securities can be far more advantageous—you avoid capital gains tax and still receive a deduction for the full market value. Utilizing a donor-advised fund makes this process simple and more strategic. For clients who have reached a certain age, Qualified Charitable Distributions (QCDs) from an IRA can be an excellent option, allowing them to give directly to charity while reducing taxable income.
Charitable giving can also play a role in whether you itemize deductions or take the standard deduction. In some cases, “bunching” donations into a single year can push you over the standard deduction threshold and increase your overall tax benefit. Like many of these strategies, a little planning ahead of time can make a meaningful difference.
5. I look at equity compensation, especially RSUs.
For clients who work in tech, this is a big one. When RSUs vest, they are taxed as ordinary income, and companies typically withhold taxes automatically. The problem is that the default federal withholding rate is often 22% (rising to 37% only for very high amounts), while many of my clients are in the 35%–37% tax bracket. That gap can result in a meaningful amount owed at tax time if it’s not addressed. The shortfall can be made up with estimated tax payments or adjusting withholding.
6. I project investment income and look for opportunities to manage it.
Investment income—dividends, interest, and capital gains—is another key piece of the puzzle, and one that can be unpredictable. I estimate, as best as I can, what this income will look like for the year and incorporate it into the overall tax picture. I also check for any capital loss carryforwards that can be used to offset gains, which is often an overlooked opportunity.
One area that can be especially frustrating is mutual fund capital gain distributions. These are largely out of your control and can vary significantly from year to year, sometimes creating unexpected taxable income even if you didn’t sell anything. It’s one of the reasons tax projections are so valuable—while we can’t predict them perfectly, we can at least plan for the possibility. It’s also a reminder that mutual funds are best held in retirement accounts.
In addition, I look for opportunities to do tax-loss harvesting—selling investments at a loss to offset gains elsewhere. This can be especially valuable in volatile markets. Even if there aren’t gains to offset today, harvested losses can be carried forward to future years.
7. I encourage clients to track key deductions throughout the year.
This may sound simple, but it can make a real difference. I encourage clients to keep track of charitable contributions and medical expenses throughout the year, rather than trying to reconstruct everything at tax time. These are two areas that can meaningfully impact whether you itemize deductions, especially in years when expenses are higher than usual.
Even if you don’t end up itemizing every year, having good records gives you flexibility. It also makes it easier to identify opportunities—like bunching charitable contributions or recognizing a year when medical expenses may be deductible.
For self-employed clients, this is even more important. Having a good system in place to track business expenses throughout the year—not just at tax time—can reduce stress and ensure you’re capturing all legitimate deductions.
Those are the big ones.
Once I’ve made the tax projection as complete as possible—and it’s never perfect, because some things simply can’t be predicted, like mutual fund capital gain distributions or changes in income—I use it as a guide for action.
If it looks like a client will owe more tax than expected, I’ll flag it and suggest they loop in their accountant, who may recommend making an estimated tax payment. It’s much better to deal with it during the year than be surprised in April.
On the flip side, if it looks like too much is being withheld, I encourage clients to adjust their withholding so they can use that cash throughout the year. I’m always a little surprised how many people are comfortable getting a large refund—it’s often seen as a form of forced savings—but in reality, it just means you’ve given the IRS an interest-free loan.
The goal isn’t to get a big refund or owe a lot—it’s to get it right. And more importantly, to remove the uncertainty that makes taxes so stressful in the first place.
If you got through to the end, I am happy, as it means I might have made a post about taxes interesting! Thanks for reading.
Good job covering the biggies!