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6 End-Of-Year Questions To Ask Your Tax Advisor
Source:
forbes.com
- Dec 16, 2013
Your end-of-year to-do list may seem full already. But it’s not complete unless it includes a conversation with your accountant.
Now that you can see how your year has ended up — whether you’ll be getting that raise you angled for, had your first child, bought a new house or launched your own business — your financial situation has likely changed in a way that you’ll want to strategize to ensure that you pay your fair share in taxes, but no more.
“In tax planning, it is important to limit the amount of potential taxation you’re looking at by doing things such as pushing off revenues to the following year or giving more money to charity [to take yourself out of a higher tax bracket],” says Ted Flynn, CEO of the Massachusetts Society of CPAs. “By sitting down with your tax advisor, he can tell you what your tax liability will be before the end of the year and some ways you might go about reducing that tax liability.”
Your tax advisor, such as a certified public accountant or enrolled agent, can help you figure out exactly what financial moves you need to make before year’s end to do so. While a face-to-face meeting is preferable, a phone call or email could also do the trick. Here are six questions to ask.
1. Should I accelerate or defer income?
If you think you’ll be in a higher tax bracket next year, you may want to bring in more income this year instead of next. For instance, if you’re retired, look at taking IRA distributions now, or if you’re self-employed, ask clients to pay before the end of the year.
If, however, you think you’ll be in a lower tax bracket next year, then you want to try to defer end-of-year bonuses until January, delay exercising nonqualified stock options (since that is usually recognized as income) and postpone any Individual Retirement Account distributions over the required minimum (if you’re over 70 1/2).
You may also want to consider accelerating deductions that you plan to take on your income tax return. For instance, you may want to prepay your state income tax estimated payment or real estate taxes not due until 2014.
2. Are there any gains or losses I should take this year given my tax position?
When it comes to your investments, if you’re in a low tax bracket and have gains, it may make sense to sell investments that are performing well in order to enjoy low taxes on those earnings, says Mark Alaimo, a CPA, personal financial specialist, certified financial planner and principal at Wealth Management Advisors LLC in Boston, Mass.
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Category: General Business
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