With the 2017 filing season officially upon us taxpayers are faced with different options for filing. It is important that each option be evaluated to ensure everything is filed correctly and nothing is missed. For some, the online programs may work but for many this is not the best option and you may be missing out on many tax saving opportunities. This is especially true this filing season with all the changes in the tax law to help plan ahead for the 2018 filing season. If you have more than just a single W2 to file it is always advised to make an appointment with a tax professional and ask questions, any questions, you may have regarding your current and future situation. These conversations help the tax preparer get to know you and what other tax advantages you may have that were never thought of. The more a professional gets to know you the more they can help you save in taxes and prevent mistakes.
One big advantage of going to a tax professional rather than an online program is you typically will get at least two professionals reviewing your return. With this expertise, you could get extra tax savings, larger refunds, and avoid penalties and “surprise” taxes later. A tax professional can review your current situation and look into what you have coming up. Are you planning on moving? Are you retiring? Are you making a career change? A tax professional can help you in these situations and take advantage of some possible tax deductions regarding these major (and minor) life changes.
Taxpayers need to be aware that refunds are once again being held longer to be reviewed more closely and many refunds will not be released until after February 21st. These returns will be for individuals claiming the Earned Income Credit and Additional Child Tax Credit. These credits are based on income and how many dependents an individual (or married couple) claims on their return. The IRS has become very strict on the rules for claiming these credits. Tax preparers have been asked to go through training and follow a strict checklist with each return to be certain the credit is correctly figured. This credit is also one that many individuals do not realize they may qualify for. For example, did you know you do not necessarily have to have a child to qualify for the Earned Income Credit?
Retirement planning is a discussion that is never too early to begin having. Do you know how much you can give now and what type of fund is best for you? When it comes to retirement planning your tax advisor can work directly with your financial advisor to determine what your options are now into the future. By having both a financial advisor and a professional tax advisor review your options you can make smarter, better-informed decisions regarding your financial future. As an example, a common question asked at tax time is whether or not it is a good idea to roll funds from a traditional IRA to a Roth IRA in order to avoid paying tax on the distributions. A professional tax preparer can look at both the history and future projections of your income to determine if this is a good option for you. Your tax professional can then collaborate with your financial advisor to determine the ideal amount to roll over and possibly set up a schedule a few years in advance. This planning can result in major tax savings, especially if you plan earlier.
Health Insurance and its requirements continue to change and are certainly something you should discuss with your tax advisor. Do you receive a health care subsidy, in turn changing your income? Do you know you may have to pay this back? In the new tax law the shared responsibility penalty may go away for 2019 but do you know the possible implications? Before making changes to your health insurance situation you should discuss this with your tax preparer to help avoid surprises.
Another common mistake is the idea that if you do not have the money to pay your taxes you should wait to file until you do. This is wrong – you should still file your return on time to avoid a late filing fee. The IRS will still charge you interest on the amount due and that interest begins accruing the day after the tax return is due, regardless of when the return was filed. By filing on time you avoid additional penalties which at times can be substantial.
Significant changes to the tax brackets and rates have been made for 2018. Do you know where you land? This has a significant impact on all tax and retirement planning. If you have a sudden change in income, whether it be an increase or decrease you should consider meeting with a tax preparer to talk about what options and possible tax breaks or penalties you may be facing. Some penalties and issues can be avoided if they are handled before the end of the tax filing year. A drop in income can create new tax breaks and tax planning options when it comes to retirement planning, deductions, and credits.
Identity theft continues to be a major issue and can be devastating. The IRS is continually trying to combat this and take preventative action to help taxpayers avoid this. One item that will be used more for the 2017 filing season is requiring identity matching. Some states are requiring driver’s license validation as a measure to help prevent identity theft. Minnesota is not among the states currently with this requirement, but will be in the future. Tax preparers will begin gathering this information for the 2017 filing season. Do not be surprised if your tax preparer requests a copy of your driver’s license or state issued identification card.
There are some tax savings actions that can be taken in 2018 that will help your 2017 tax year. Many individuals have the opportunity to pay money into a retirement plan or a health savings account and reduce their tax bill. Visiting with a preparer earlier in the year can help determine if you should work with an insurance agent or financial planner to take advantage of this strategy.
Tax laws are constantly changing. The 2018 tax bill is the biggest tax bill since 1986. Tax preparers are now required to do more research and attend more courses than ever before to keep up with these changes to best inform the taxpayers. As these changes continue it is important that you sit down with a professional and ask questions to determine if and how any of these changes may affect you.