According to the IRS, 95 percent of individual returns have been filed each year by mid-July. Now the question is, who are those leftover 5 percent? There are two options: 1) The world’s biggest procrastinators, or 2) The ones who are waiting for information from third parties, such as partnerships or other entities, and who file by the final October 15th deadline.
Good tax planning means being aware of tax law changes and how they impact your tax situation, matched with an awareness of what has occurred in the current year that might impact your results.
This means that it is critical to have a good understanding of where the tax chips will fall before the clock ticks down on New Year’s Eve. The best way to know you’re on the right path is to work with a qualified, experienced and caring CPA who will make sure you are not heading for unexpected outcomes or unwanted surprises.
To give you a good place to start, I spoke with Kenneth Bagner, CPA and Partner at Sobel and Company in Livingston, New Jersey to get his take on tax planning and current issues that savvy taxpayers should be considering.
Are there any changes in the tax law that individual tax payers should be aware of?
“We are still waiting on tax reform to be passed. There are not many days left in the year that Congress will be in session so it is highly possible tax reform will not be passed this year. It is possible there will be tax reform passed after year-end applied retroactively to the 2017 year. Without any changes there is basically inflation adjustments for the standard deduction—tax brackets and seniors will have to be over 10% of adjusted gross income to deduct medical expenses. As far as Trump proposals, the administration wants to reduce the amount of tax brackets down to 3 instead of 7, double the standard deduction, limit certain itemized deductions such as interest and real estate taxes, charge lower tax rates for owners of flow through entities (partnerships, S Corporations) and provide an avenue of reduced taxes upon repatriation of foreign assets oversees. What this means to each American is unknown at this time as the proposals are very broad in nature and have generally been outlined in a three-page memo by the Trump administration. The key is the administration would like a tax break for all Americans, but the devil is in the details. Tax reform may end up benefiting some to the detriment of others.”
Should taxpayers meet with their CPA’s before the end of the tax year? If so, what items should they have prepared for review?
“If you are an employee and have well overpaid or underpaid your taxes in the prior year, you should meet with your CPA to work towards having a limited amount of a refund or limited amount owed come April 15th, 2018. There is no purpose to give the IRS a tax-free loan during the year! You also shouldn’t grossly underpay your taxes and then have to struggle for cash flow come April 15th. Also, if you have a large transaction such as selling a property, you should call your CPA before the transaction occurs. Most major decisions, whether it is working at a new job, retirement, marriage, divorce, buying a business, affect you economically as they relate to your tax position and you should consult with your CPA about these life changes to ensure you have the best tax plan moving forward. I would recommend you speak to your CPA before you meet with them to ask them what documentation you should show them when you meet.”
What steps should taxpayers take before the end of the year to minimize the tax burden?
“For employees of companies, I would recommend meeting with your CPA sooner rather than later to ensure your withholding is enough to cover your projected income at year-end. For business owners who are on the cash basis, I would recommend accelerating deductions and reducing income, if possible, for the purpose of having the lowest possible income in a high tax environment assuming Congress are not able to agree upon any tax changes to go into effect until 2018. This is certainly a possibility. Right now there is real uncertainty on what bills will be passed, if any, on tax reform that will affect the 2017 tax year. “
Any common mistakes that taxpayers make that awareness might help avoid?
“If you are unsure about a document you have received, ask your CPA. Your CPA is not going to know what has gone on during the year as well as you. Also, press your CPA on what you can do to save on taxes. The more information your CPA/Accountant knows about you and what has transpired in the previous tax year, the more innovative ideas they can generate to save you taxes.”
Great advice! Don’t wait until it’s too late to make a real difference in your bottom line—better a month too soon than a minute late.