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canyonwalkerI had a pretty quiet weekend again this past weekend. Boring, too. How boring? So boring that I started my taxes. ...And I don't mean my taxes that are due April 15. I started next year's taxes. The ones for 2026 that aren't due for another 15 months!
Why start so soon?
As I've mentioned before, I start my taxes a year in advance. Obviously I can't fill out forms yet. I mean, I won't have the numbers for at least another 12 months... and even the forms won't be available until around this time next year! But what I do start a year in advance are estimates.
I like to know in advance approximately what I'm going to owe for taxes. With that knowledge I can adjust my withholding rates, if necessary, and also pay quarterly estimated taxes accurately. My goal is not to be surprised by a big balance due or refund come April— whether that's April 2026 or April 2027. A big balance due can mean penalties owed to the IRS... and a big refund means I've lent them money at 0% interest! Either way, ugh.
Working on these estimates now for the tax return I'll file 15 months from now already has proven worthwhile. As I plan to retire soon this year I'll be shifting from earning significant amounts of money in wages to getting most of my taxable income from dividends and capital gains. That has tax implications. Dividends and capital gains are taxed lower than wages. There's an interesting edge case where some dividends and cap gains can be taxed at 0%. That provision never applied to me before because my wages were always too high. I worked through that edge case in my planning this weekend. It lowered the tax I expect I'll owe by several thousand dollars. Hooray! And by knowing that now I know not to overpay on quarterly estimated taxes and give Uncle Sam a big, interest-free loan. That makes my advanced preparation a double win.
Why start so soon?As I've mentioned before, I start my taxes a year in advance. Obviously I can't fill out forms yet. I mean, I won't have the numbers for at least another 12 months... and even the forms won't be available until around this time next year! But what I do start a year in advance are estimates.
I like to know in advance approximately what I'm going to owe for taxes. With that knowledge I can adjust my withholding rates, if necessary, and also pay quarterly estimated taxes accurately. My goal is not to be surprised by a big balance due or refund come April— whether that's April 2026 or April 2027. A big balance due can mean penalties owed to the IRS... and a big refund means I've lent them money at 0% interest! Either way, ugh.
Working on these estimates now for the tax return I'll file 15 months from now already has proven worthwhile. As I plan to retire soon this year I'll be shifting from earning significant amounts of money in wages to getting most of my taxable income from dividends and capital gains. That has tax implications. Dividends and capital gains are taxed lower than wages. There's an interesting edge case where some dividends and cap gains can be taxed at 0%. That provision never applied to me before because my wages were always too high. I worked through that edge case in my planning this weekend. It lowered the tax I expect I'll owe by several thousand dollars. Hooray! And by knowing that now I know not to overpay on quarterly estimated taxes and give Uncle Sam a big, interest-free loan. That makes my advanced preparation a double win.
