May 2026
Upcoming Dates:
May 25 - Memorial Day
W
ith so much uncertainty in the economy, the tendency is to step back and wait until things settle down. On the other hand the early bird catches the worm. Now is a great time to be thinking about steps to reduce your tax obligations, both this year and into the future. This month an article is presented for your review to get the ball rolling. There is also an article outlining the specifics of student loan payments being restarted after the Justice Department overruled
several loan forgiveness initiatives. Rounding out this months news, and on the heals of recent lawsuit wins regarding the addictive nature of social media, is an article about the comeback of traditional, slower-paced hobbies. Want to bake some bread, anyone? As always, feel free to call if you wish a review of your situation.
TIME TO CREATE YOUR 2026 TAX PLAN
Income sources are key
Tax planning combines how much you think you will make, with the source (or how you make it), generating a tax effective result. This could make two clients with the exact same taxable income have entirely different looking tax bills. That's the hard news. The good news – now is the perfect time to review your situation. Here's a simple, but effective approach: Step 1: Take inventory of your income sources Most income falls into a few core categories – wages from an employer, self-employment, freelance work, investment earnings, and any side income you pick up along the way. Other types of income you may have include: • Retirement income (pensions, Social Security, IRA or 401(k) withdrawals) •
Rental income from real estate
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Business distributions (for S-corp or partnership owners)
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Interest from savings accounts or bonds
If you aren't sure, take a moment and look at last year's tax return. It's a great place to start. Then consider any changes you expect. Step 2: Get familiar with the different types of taxes Not all income is taxed the same way. And these differences can add up quickly. • Wages are subject to a progressive income tax from 0% to 37%. So know the rate your next dollar of tax will pay. Also don't forget wages are subject to payroll taxes like Social Security and Medicare (7.65%). • Self-employment and freelance income is subject to the same tax rates as wages except most don't automatically withhold taxes and may also be subject to self-employment tax (15.3%). So planning here needs to consider quarterly estimated tax payments. • Investment earnings can be subject to a variety of tax rates such as interest and short-term capital gains (up to 37%), qualified dividends (0% to 20%), or long-term capital gains (0% to 20% depending on the holding period and income type). • Retirement income may be fully taxable (up to 37%), partially taxable (varies), or tax-free (0% for certain Roth distributions).
• Rental income is generally taxed at ordinary income rates (up to 37%), though deductions can decrease your total taxable income. • Business distributions vary by entity and may be taxed at ordinary income rates (up to 37%) or pass through with no additional tax at the distribution level (varies). Step 3: Tips to manage your tax burden • Align your tax payments with how you actually earn. If a growing portion of your income is coming from somewhere outside a traditional job, withholding alone may not cover your tax liability. W-2 income is handled automatically, however freelance, investment, or rental income often requires quarterly estimated payments to avoid penalties. • Use withholding and estimates together. Adjust paycheck withholding to pair it with estimated payments when income is uneven or comes from multiple sources. • Pay attention when your income changes. These income shifts can catch people off guard with a higher tax bill if they don’t adjust their plan early in the year. • Be intentional about when income and expenses hit. Sometimes you have control over when you earn income or pay expenses. Used correctly, adjusting your timing can help smooth out your tax bill, especially if you’re self-employed or have investment income. • Check your plan throughout the year. Your income mix can change quickly, and small updates can make a big difference. A quick review during the year can help you stay on track and avoid surprises later. By understanding your income sources, how each is taxed, and how to align your payments and timing strategies, you can take a more proactive approach to managing this year's tax bill. ■