Tax Status Update
If you are lucky enough to have them, you probably call your parents, text your siblings and message friends on social media, likely in frequent intervals to share a variety of details about your life. You might share photos of a new vehicle you purchased on your Facebook or submit a release to the newspaper about a change in job status. We share a multitude of details about our lives with everyone we know, and strangers alike but how often do we forget to pass along critical information to our CPA?
Communicating with your accountant or tax professional(s) during the year can help ensure you are maximizing your tax savings before or after any financial changes, some you might not even think are relevant. This is even more so an opportunity if you are a business owner, a self-employed taxpayer, or have any separate tax schedules. Imagine a “status update” that could save you tax.
I hope by this point you have at least added your accountant’s contact information as a contact in your phone to have them handy. Now you might ask, “but what information do they need to know about?” Here are some actions that might necessitate a note to the person handling your tax return:
Filing status – One of the first questions answered when preparing a 1040 tax return is checking a box for your filing status. Which of the five different filing status options (single, married filing jointly, married filing separately, head of household, and qualifying widow(er) with dependent child) chosen will determine the rates at which income will be taxed. If you have or plan to be married, divorced, or separated during the year, your CPA can help determine any changes that may be advantageous to be made, such as changing your federal withholding amounts or planning for an alimony or child support payment.
Dependents – Without corresponding with your tax preparer directly, you are leaving to chance that they see your Birth Announcement in the newspaper after your baby has arrived. If you are expecting a birth during the tax year, planning to foster or adopt, or have/expect to have a change in dependent(s) in your home, let your accountant be on the list to know. A quick phone call can help your CPA determine additional questions to ask for potential credits you may be eligible for and wish you some congratulations.
New employment endeavors – Income is a big part of your tax return, but so are expenses. If you don’t know the IRS Tax Code, you may be jeopardizing opportunities that exist for your new business or side hustle. You may benefit from having your CPA have a hands-on view of your business transactions and bookkeeping to find deductions that you may not be familiar with.
If you are entering or exiting the workforce, or even changing jobs, your tax professional should be in the loop. Likely this change in employment status will affect your income, thus your taxes.
Investments or Real Estate Transactions – Before jumping into a new investment or selling a property, a quick call could end up saving you big. Many investment or real estate transactions have holding periods or income cliff thresholds that will determine how they are taxed. A period of a few days could change whether an investment transaction receives beneficial tax treatment.
Your relationship with your CPA should be more than a once-a-year interaction. A good CPA is one that helps you and guides you throughout the year…just might need to first share your status update.
Published in the Victoria Advocate
Beth Koonce is a CFP® professional and Lead Advisor with Keller Wealth Advisors.
