Now that the October 15th deadline has passed and your 2018 taxes are filed, it is time to switch gears to your 2019 taxes. Year-end is quickly approaching, and now is a great time to do some tax planning. In fact, it’s never too early to think about tax planning for the coming year. Tax planning is an opportunity to look at your current financial situation and strategize ways to optimize and reduce your tax liability. Have you ever filed your taxes and thought “wow, I was not expecting to owe this much…” or “I wish I would have known…”? Being proactive with a tax plan can help avoid those unpleasant thoughts because you’ll already have a good idea of what your tax liability will be once you file your taxes. The more information you can provide to your accountant during the tax planning process the more accurately they can project your tax liability for the coming year. Some things to consider during the tax planning process are:
· How will your 2019 income compare to your 2018 income? Did your wages increase or decrease? Should you have additional income tax withheld from your paychecks for the remainder of 2019? Should you make a 4th quarter estimated payment due January 15, 2020?
· Did your marital status change? Was there a change in dependents?
· Did you or your spouse retire? Are you collecting social security?
· Are your itemized deductions close to the standard deduction? If so, consider a bunching strategy where you make additional payments before year end such as charitable donations, mortgage and property tax payments, and medical expenses to increase your itemized deductions this year.
· How much have you contributed this year into tax-advantaged retirement and medical accounts? Are you able to contribute more?
Having a tax planning meeting with your accountant is the perfect time to ask questions regarding your finances. Here are a few examples of questions you may want to ask your accountant:
· Should I accelerate or defer income? Would it be better to take my year-end bonus in December or try and push it into January?
· Is a Roth conversion a good option for me? Does it need to be done by year-end?
· I have some investments I want to sell. Should I sell them by year-end? Do I have any capital loss carryforwards?
· I am considering starting my own business. How should I structure my business? What impact will that have on my taxes?
· What else can I do to minimize my taxes?
Get Organized
Now is also a great time to start organizing and gathering your tax documents and receipts. Even though you won’t start receiving your W-2s and 1099s until the end of January, you can create a folder now with all of your receipts related to your tax deductions such as charitable donations, medical bills, and business expenses if you are self-employed. After the year ends and you start receiving additional tax documents you now have a designated folder for those documents. If paperwork isn’t your thing you may want to consider organizing all your documents electronically. You can scan your receipts and download your online statements into a folder on your computer. There are many phone apps that allow you to scan your documents right from your phone. If you do decide to keep your documents electronically make sure you back them up, so you don’t lose them!
Schedule an Appointment
Every taxpayer’s situation is unique and can change from year to year. Contact your accountant to schedule your year-end tax planning meeting.