Many people experience a mix of uncertainty and dread, maybe even excitement, each spring as they compile their tax information and patiently wait for their tax preparer to finalize their tax returns. Will I get a refund? How much am I going to owe? Did I remember to include all my charitable receipts and my children’s education expenses? As soon as these questions are answered, taxes are effectively ignored until this time next year. If there’s any year not to ignore taxes, but instead embrace tax planning strategies, this is it! We now have one year of filings complete under the new rules of the Tax Cuts and Jobs Act that was passed into law late in 2017. But now what?
Identify how 2019 may be different from 2018
Tax planning is only as reliable as the underlying information and assumptions used. Review your 2018 tax returns for any anomalies that may not repeat themselves in the future. Consider what new things may happen in 2019 that you need to plan for. Share these observations with your financial advisor and tax preparer. Don’t feel like you have to tackle this alone! Having a realistic picture of your 2019 situation will help you determine where planning efforts should be focused.
Adjust your withholding rates and/or estimated tax payments
Did you get a larger refund than you were expecting? If so, increase the number of exemptions you are claiming on your W-4 or reduce your quarterly estimated payments. Or maybe you wrote a bigger check than you had hoped? In that case, lower your W-4 exemptions or supplement by making quarterly estimated payments. Even if you choose not to make adjustments, you should at least have a sense of where you’ll end up so you can plan accordingly.
Think about taxes all year long
Springtime stress related to taxes can be reduced if you proactively plan for taxes throughout the year. In a world where there’s an app for everything, you should have no problem finding easy-to-use apps that you can use to track charitable donations, business expenses, medical payments, etc. in real time. That information can be conveniently shared with your tax preparer in worksheet or spreadsheet form when requested. Thus, you won’t need to spend hours looking through checking account or credit card statements.
Educate yourself on the tax law changes
Is there a deduction or credit that you may have missed out on because you didn’t have the supporting documentation or knowledge last year? Rely on your advisors – financial planner, attorney, CPA, etc. – to provide you with the tools and resources to receive as many tax benefits in the future as you can. Tax changes are often snuck into federal and state legislation routinely, but usually get no media coverage if the changes aren’t a huge overhaul.
Tax planning: do it early and do it often!
Laura Bereiter, CPA, PFS™, CFP® joined White Oaks Wealth Advisors in October 2015. She offers comprehensive wealth, tax, and estate planning to the firm’s clients.