WASHINGTON聽鈥斅燨ne of the best financial investments you can make this fall is to spend a little bit of time and a little bit of money to meet with your accountant.
Don鈥檛 wait until March when they鈥檙e slammed with number-crunching and tax preparation. He’ll have plenty of free time after the extended Oct. 17 tax deadline.聽And, it鈥檚 about time you used your accountant as more than your 鈥渄ata input鈥� tax preparer. Using him聽as a consultant can pay off big time.
Avoid the surprise tax bill
Compare your tax situation from last year to this year.聽 Are you making more or less money?聽 Are you withholding the right amount from each paycheck?聽 Adjusting your withholding can help you avoid a surprise tax bill or refund in April.
If you鈥檝e had any major life changes, such as marriage, children or a new job, you should review your tax withholding to avoid giving the government an interest-free loan, or worse, owing a penalty for not paying enough tax.
If you have uneven income from self-employment income or partnership distributions, you may need to make quarterly .聽 Review these payments with your accountant to make sure you aren鈥檛 hit with any penalties.
Planning opportunities
If you鈥檙e earning less income than last year and have retirement savings accumulated, now may be a good time for a .
This is an IRA strategy in which you can take advantage of being in a lower tax bracket by paying taxes now, either on all or a portion of those retirement savings, to avoid a larger tax bill in the future.聽 Converting part of an IRA can save you loads of money on taxes if you are temporarily in a lower tax bracket.
Planning to donate to a charity during the holiday season?聽 Ask your CPA about the most tax-efficient ways to give to charity.聽 For example, by donating shares of stock instead of cash, you can earn the same tax deduction, with an added benefit of avoiding paying capital gains taxes on the sale of that stock.聽 Or, if you are over 70-and-a-half and have a 聽and聽you鈥檙e planning on giving to charity anyway, it may make sense to give directly from your IRA or 401(k) through a qualified charitable distribution (QCD).
Smart deductions
Walk through your tax return and talk through deductions you may be missing with your accountant.聽 As financial advisers at , when we look over our clients鈥� tax returns, we often find , such as聽medical expenses, investment adviser fees or tax prep fees, student loan interest and charitable gifts.
Plenty of items tend to slip through the cracks if you aren鈥檛 aware they can be deducted.聽 Often your CPA just doesn鈥檛 have the time to ask you about each and every opportunity for tax savings in April, but having this conversation in the fall can bring missed opportunities to light.
It also makes sense to talk to your CPA about the opportunity to realize capital losses during the year if you have any investments that have done poorly.聽 Tax-loss harvesting can help offset capital gains you may have earned, and can typically be deducted against ordinary income up to $3,000 if you have a net capital loss for the year.
Empower yourself
Lastly, have your CPA walk you through your tax return as a whole.聽 You鈥檒l get a better understanding of your tax situation and will be able to proactively think through opportunities for tax savings and deductions in the future.
Even if you don鈥檛 have an accountant or use TurboTax, you can still go to a tax-preparation office like H & R block and have these conversations with a tax professional.聽 Accountants are not like a seasonal fruit stand; they鈥檙e open year-round.聽 And if you鈥檙e looking to hire a new accountant, Washingtonian magazine has a great list of .
