The year is winding down, and it will be the new year before we know it—and then tax season arrives. That is still a few months off, but good planning can be done well in advance of tax deadlines and the preparation stage.
Reaching out to your tax advisor now, before year-end, allows time for you to address things so there are fewer surprises later (and possibly save some money in the process). Here are seven topics to bring up to your CPA or tax preparer.
1. Higher Income
If your household income has risen noticeably since last year, your tax preparer is going to want to know sooner rather than later. This allows them to check your withholding to make sure enough is being taken out from the paychecks or bonuses you are receiving.
There are IRS rules about making sure you pay enough in taxes over the course of the year rather than paying large amounts at tax time. These are called underpayment penalties and generally state you need to pay at least 90% of the total taxes owed for this year, or 100% of the tax paid last year, whichever is lower, to avoid the penalty.
Aside from these rules, if your income has gone up, your amount of tax due will have as well, so they can start explaining any options for reducing taxable income before it’s too late.
2. Lower Income
Conversely, if your income has gone down, it’s likely you are interested in keeping as much money in your pocket as possible. If your withholding is too high, then you would receive a refund when you file, but having that money arrive earlier as part of each paycheck helps cash flow. With the IRS issues regarding timeframes lately, you might not want to wait for your refund to be processed when you can access some of it now.
3. Traditional &; Roth IRA Contributions
Both Traditional and Roth IRA contributions are a valuable way to save for retirement, but unlike 401(k) contributions, there are income limits you need to stay under. Being under the limit in the case of the Traditional IRA allows you to deduct the contribution from your income. Being under the Roth income limit makes you eligible to contribute to begin with.
Making it even more complicated, these limits are not the same for both Traditional and Roth accounts and are not even one number–they are actually a phased income range, which differs further depending if your filing status is single or married filing jointly.
You could wait until tax time to find out from your CPA whether you were under the limits. But checking in now could give them time to identify and put in place strategies to help you keep your income under the limits. Not to mention, it could also give you time to plan to make the funds available for the contribution. You have until you file to make the contribution for the prior year.
4. Property Transactions
If you moved or bought or sold property this year, whether or not that was your primary residence, it’s definitely time to check in with your tax advisor. There could be a wide variety of tax circumstances to be aware of like capital gains tax on the sale of the property, depreciation recapture, or differing amounts of mortgage interest deductions compared to last year.
5. Tax Legislation
Like every other year, there are various bills floating through Congress that may or may not change tax rates or rules. Most of the time, you might hear about these proposals in the news, but they either don’t get passed or don’t affect you. Your tax advisor can provide an update on what changes have already passed and how they might affect your situation. Connecting with your advisor now is also an opportunity to assess which bills are likely to pass and how you can plan for them proactively, instead of reactively.
6. Taking Gains or Losses
Your tax advisor can offer a perspective on investments you own that have gone up or down in value. Maybe your income this year is low so taking some gains is an option, or you have stored losses from prior years you can now use with offsetting gains. Depending on your specific circumstances and the current tax laws, your advisor might be able to develop strategies to help you reduce your tax liability before the year is over.
7. Planning When to File
Even if none of the scenarios above fall into your tax circumstances, there is still the annual question of whether you will end up owing or getting money back after filing your taxes. To the extent you can estimate now how things might play out, you can plan when to file. If you think you will be entitled to a refund, getting your return filed as early as possible might help with processing times so you can receive your funds. Alternatively, if it appears you might owe, perhaps there isn’t a rush other than making sure you set aside some funds and that you file before the deadline in April.
Hopefully these ideas help you feel confident in taking a proactive approach to your tax planning. Before the end of the year, schedule some time with an advisor or tax specialist to discuss your strategy and make sure your tax season works for your wallet.
This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax advisor.
