Avoid Unnecessary Tax by Meeting with Your Accountant Before the End of the Year
No one wants to pay more in tax than they need to. Reaching out to your accountant periodically – and not just at the very end of the year – empowers you to discuss financial situations and strategies that, if not addressed in a timely manner, can become costly. By proactively meeting with your accountant, you avoid unwanted surprises as well as spending unnecessary money and time reacting to avoidable problems.
Here are seven topics you’ll want to address with your accountant…
1) Higher or Lower Income
Has your household income risen this year? If so, you’ll want to have your accountant double-check your withholding amount to help ensure you’re taking out enough and avoiding a significantly higher tax bill. Additionally, ensuring the correct withholding amount prevents potential underpayment penalties that can accrue.
On the flip side, has your income lowered this year? If so, you’ll want your accountant to double-check that your withholding is not too high, so as to keep more money in your pocket. Otherwise, you’ll have to wait for the IRS to refund you that amount, and this may take some time to process.
2) Property Transactions
Did you move, buy, or sell a property this year? Especially if this transaction was not on your primary residence, you’ll want to talk with your accountant about whether you will have to pay hefty capital gains on either the property sale or potential depreciation recapture.
3) Traditional and Roth IRA Contributions
Did you make Traditional or Roth IRA contributions this year? If so, there are required income limits you must stay under, and the rules can vary for either retirement account. For a Traditional IRA, you can deduct the contribution from your taxable income, income limitation applied. For a Roth IRA, you must be under the income limit to be eligible for contributions. Roth contributions are not deductible from taxable income. Moreover, the limits vary for both types of IRAs, and they can differ depending on your income range and filing status. Thus, checking in with your accountant can be a lifesaver when determining whether you are keeping your income under the limits as well as prepping the funds you wish to contribute in advance.
4) Roth Conversion
It may be worth discussing if a conversion from a Traditional IRA to a Roth IRA would provide tax benefits, especially if your income has dropped in the past year. Additionally, if your income has increased and you now earn too much to contribute to a Roth IRA, you might want to consider backdoor Roth contributions as another tax-advantaged method. For both strategies, it’s important to speak to an accountant who has financial planning and investment knowledge. At Storen Financial, many of our accredited CPAs and EAs are also financial advisors equipped to provide tax advice that factors in these investment strategies.
5) Taking Gains or Losses
Simply put, your accountant can help spot whether taking gains or losses is an option. Stored losses over previous years can be a great way to utilize offsetting gains.
6) Tax Legislation
Every year, Congress passes a large chunk of new tax bills, and these are hard to keep up with, especially when not every single one affects you. Meeting periodically with an accountant means granting yourself the opportunity to stay updated on any tax legislation changes that may affect you.
7) Deciding When to File
Each year, it’s important to consider when you’ll file. This can be determined by whether you anticipate receiving a refund or owing. If the former, you may want to file sooner rather than later so you can access your refund ahead of time or prevent paying additional interest and penalties accrued throughout the year. If the latter, you may want to start setting aside funds in preparation for the April deadline.
Overall, when you meet with your accountant periodically, you can work with them one-on-one to develop tax-saving strategies based on your unique situation. These strategies are increasingly more difficult to accomplish when you haven’t planned accordingly and are paying more in tax than you would have had you sought an accountant’s expertise beforehand.
Making decisions about your money isn’t always straightforward. At Storen Financial, our team is dedicated to helping you maximize your earnings and minimize your taxable consequences. Tax projections are a great way to avoid unexpected taxes (Click here to read our “3 reasons a tax projection is a wise financial move” blog). If you would like to have a tax projection completed, please contact us (click here for contact information).
Blog by Daniel Walters, EA – Senior Tax Accountant
Learn more about Daniel and the rest of the Storen Financial team here.
Contributions to a traditional IRA may be tax deductible in the contribution year, with current income tax due at withdrawal. Withdrawals prior to age 59 ½ may result in a 10% IRS penalty tax in addition to current income tax.
A Roth IRA offers tax deferral on any earnings in the account. Qualified withdrawals of earnings from the account are tax-free. Withdrawals of earnings prior to age 59 ½ or prior to the account being opened for 5 years, whichever is later, may result in a 10% IRS penalty tax. Limitations and restrictions may apply.