With all the tax law changes over the past few years, here are some things that should trigger you to conduct a full tax planning session to ensure your tax bill is not higher than it needs to be.
- You owed tax in 2020. Having a surprising tax bill is never fun. So if you owed taxes last year, project your current year obligation if you have not already done so.
- Your household income is over $150,000 single and $200,000 joint. As your income grows, so does your tax bill. This occurs because tax rates increase, and tax benefits phase out. This includes things like lower child tax credit amounts, increases in capital gains tax rates, higher income tax rates, Medicare surtaxes, plus more.
- You are getting married or divorced. The tax penalty for being married is higher than ever. Are you prepared?
- You have kids attending college next year. There are a number of tax programs that can help. You may wish to review your options and their impact on your tax return.
- You have a small business. There are depreciation benefits, qualified business deductions and numerous small business tax credits to consider. A review is especially important if you have a business that is a flow-through entity like Sub Chapter S or LLC companies as these entities are taxed on your personal tax return..
- You plan on selling investments. Capital Gains tax rates can now range from 0% to 37% (or even higher with the Net Investment Tax).
- There are changes in your employer provided benefits. These changes could impact your taxable income this year.
- You buy, sell or go through home foreclosure. There are great tax benefits within your home, but only if you know about them and plan accordingly.
- You have major medical expenses. It is harder than ever to itemize deductions, but one way it is possible to itemize is if you have a major medical expense. When this happens it is time to review all itemized deductions to minimize your taxes.
- You recently lost or changed jobs. Understanding the tax impact of unemployment benefits is crucial.
- You have not conducted a tax withholding review. To avoid underwithholding penalties, you need to ensure your withholdings are sufficient.
- Your estate has not been reviewed in the past 12 months. Recently passed estate laws and potential changes in these rules make an annual review a must.
If any of these triggers apply to you, please schedule a tax planning appointment.
— By Nancy J. Ekrem, CPA
DME CPA Group PC
Certified Public Accountants & Business Consultants