For years I’ve been running my own tax estimates throughout the year to see how close I can get to my accountant’s official results. I find taxes fascinating and challenging as I review the business and personal returns. Regardless of the results, I seem to learn something new each year. I apply these lessons to my practice, our family’s financial decisions, and share what I’m learning with my clients. Here’s what I’m doing to prepare for taxes in 2026.

It’s not what you accumulate, it’s what you keep that matters. Given taxes take a bite out of all investors’ accumulated wealth and income, completing a review of last year’s return is valuable.

• If you owe, it’s a great time to adjust your W-4 withholding for the remaining eight months of the year. This also minimizes the possibility of underpayment penalties.
• If you receive a refund, perhaps you’re withholding more than you need to. Adjusting may increase net cashflows.
• If you break even or close to it, that’s the sweet spot to replicate as consistently as possible.

With the updated tax bill in place, it pays to know the difference between your adjusted gross income (AGI) and taxable income. Both influence what benefits and deductions taxpayers may be eligible for and phase out of. AGI is the larger number before applying either the standard deduction or itemizing deductions on your schedule A. The choice is usually clear but can be less straightforward as one pays down their mortgage balance (less interest deduction) and/or experiences income fluctuations year over year. 

• State and local taxes (also referred to as SALT) may be creating some unexpected refunds for those with taxable incomes of $400k+/- when married filing jointly.
• At the same time, many investors who receive stock compensation as part of their overall package may owe more than they expected. Positive volatility in the stock market last year raised company prices. This translates to larger W-2 incomes as vested stock awards add up throughout the year.

Another strategy to be aware of is switching jobs mid-year. When you begin earning income at a new job, the tax system doesn’t recognize you were working elsewhere earlier in the year. This leads to lower federal withholding initially which can have you playing catch up. It’s always a good idea to reflect on what you’ve withheld from job A year to date as you’re beginning job B. 

How you save for retirement via your employer plan will have a big impact on your taxes too. Do you choose to pay taxes today or tomorrow? Personally, our family has been investing via Roth retirement options as I’d prefer to pay taxes today versus through retirement. My gut tells me taxes will be higher in the future, and current income tax rates for all filers are lower today than they were in 2017. For our family Roth is a no-brainer, but investors should review their choices.

Investing in Roth employer retirement accounts allows us to sock so much more away than trying to invest in a Roth IRA. Income thresholds are so low that many investors, our family included, can’t take part. Backdoor Roth IRAs receive a lot of hype, but other IRAs in your name may limit the effectiveness of this approach. It’s a good reminder that there are no income limits to participate in your employer’s Roth retirement plan. 

Roth employer accounts today may allow you to sidestep pretax to Roth IRA conversions down the road. Earned income decides your Medicare premiums in your 60s. Recognizing large taxable lump sums (including cash to pay taxes) can be eliminated by enrolling in a Roth employer plan while working. I’ve seen an increased adoption rate by more employers offering Roth choices with their company retirement plans. More choices give investors an opportunity to take an active role on when they pay income taxes, now or later.

I run future spending scenarios for our family and our clients based on their definition of retirement and desired timeline. It still amazes me how much Roth investments boost the sustainability of spending through your later years when compared to pretax investing. This knowledge in your 40s, 50s, and 60s can make a difference in your spending through retirement.

Our family continues saving in our after-tax investment account. These dollars, when needed, will be taxed at long-term capital gains rates. Owning passively managed exchanged traded funds keeps current year taxes lower than comparable mutual funds. When our family liquidates our after-tax investments, we’ll likely pay 15% capital gains tax on the gain based on our taxable income in that year. This is more attractive than the 32%, 35%, and 37% tax brackets that go with higher earned income.   

At the end of the day cashflows drive a lot of our family’s decisions. By diversifying tax environments, checking cash reserves and income withholdings we can take a proactive approach in our tax planning. It’s taken a few years to get a handle on this, but it feels great not reacting or being controlled by taxes. Setting time aside to plan for retirement and taxes is totally worth it.