Are You On Track with Your Financial Plan?
Your to-do list is probably pretty full at this time of year. While the thought of adding one more task may feel overwhelming, it’s one that can help put your mind at ease in the New Year. Talk to your CPA.
The last few months of the year are the perfect time to get your financial house in order. Sitting down with your CPA earlier, rather than later, gives you the time you need to make changes to your tax or investment strategy. Your goal is to make sure your personal financial plan is on track. Financial experts at the Pennsylvania Institute of Certified Public Accountants (PICPA) recommend asking important questions of your financial professional before you welcome in 2019.
Five Key Questions
You’ve scheduled an appointment with your CPA. Now what? Here are five key questions to ask.
What should I do now to make filing my taxes easier in the spring?
Spend a little time organizing now and you’ll avoid anxiety when spring rolls around. You can also save time and money by submitting organized information to your CPA. As you receive tax documents in the mail, file them in a folder and set them aside until tax time. Most tax documents must be mailed by Jan. 31, so you should have everything by the first week of February. If not, call and request a duplicate. One exception, however, are brokerage statements. They may not be mailed out until the end of February, or later if they need to be amended. If you receive a brokerage statement you may wait to finalize your return until late March.
Next, go through your check book, credit card statements, and cash payouts for the basic deductible items. This includes medical expenses (including eye glasses), taxes paid, charitable donations (both cash and noncash), and any employer expenses that were not reimbursed. Don't forget daycare expenses, student loan interest, and tuition if applicable.
Finally, there was a change in February 2018 to the federal withholding tables that gave most employees an increase in their take home pay. Was this the extra refund you were entitled to under the tax reform act, or are you receiving part of your refund each pay? This is a question that your CPA can work through with you.
What can I do to lower my tax bill?
Your CPA can help you look at your income to determine the best course of action to lower your tax bill. With the new tax bill that went into effect January 1, 2018 there were substantial changes to the standard deductions, exemptions and childe tax credits. Planning with your CPA will help you determine where you currently stand. If you may be in a higher tax bracket next year, your CPA may recommend accelerating your income, including taking IRA distributions this year instead of next; selling stocks or other assets with taxable gains this year; or, if you’re self-employed, asking clients to pay before the end of the year. If you have recognized capital gains this year, look at “tax-loss harvesting” as a strategy to offset those gains. Note: if you sell investments to recognize a capital loss, you cannot repurchase that investment for 30 days (wash sale rule) for the loss to be allowed for income tax purposes.
On the other hand, if you think you might be in a lower tax bracket next year, talk to your CPA about deferring income by deferring year-end bonuses until January 2019, delaying the exercise of nonqualified stock options, and postponing receipt of distributions beyond the required minimum from IRAs. Also consider accelerating deductions such as prepaying your fourth quarter state income tax estimated payment and/or real estate taxes not due until 2019.
How will income tax changes affect me?
The 2018 tax year has a 37 percent marginal tax bracket for higher-income taxpayers. The 37 percent bracket affects the following taxpayers:
|Married filing jointly and
| $600,000 or more
|Head of household
|| $500,000 or more
|| $500,000 or more
|Married filing separately
|| $300,000 or more
Higher-income taxpayers also must face two Medicare taxes unveiled in 2013: the 3.8 percent surtax on net investment income and a 0.9 percent Medicare contributions tax on earned income. The net investment income tax is triggered when adjusted gross income exceeds $250,000 for married couples filing jointly and qualifying widowers, $200,000 for heads of household and single filers, and $125,000 for married but single filers. The additional Medicare contributions tax is triggered when a taxpayer's wages, compensation, or self-employment income exceed these same threshold amounts. These amounts are not adjusted for inflation.
Can I benefit from making a charitable donation?
Charitable contributions made to qualified organizations may help lower your tax bill. Taxpayers can donate appreciated property instead of cash to a charity, which yields double the bang for your buck because an individual can deduct the property's fair market value on the date he or she gives the gift and avoid paying capital gains tax on the appreciation. The deduction of appreciated property is generally limited to 30 percent of adjusted gross income. Because of the increase in standard deduction, to $ 24,000 for married filing jointly, it is a good idea to discuss additional charitable contributions with your CPA prior to making them so that you know how it will affect your taxes.
Is my financial plan aligned with my short- and long-term financial goals?
The end of the year is a good time to evaluate your overall personal financial plan. Life events such as the birth of a child or grandchild, marriage, divorce, death, retirement, or inheritance all mean you should review and update your plan. Do you need to make changes to stay on track? Ask your CPA if your assets are properly allocated, if your spending plan is on track, and whether you should reassess your risk level based on to life changes and the current economic and investment environment.
A CPA Can Help
A CPA can help you analyze your current situation and determine the best course of action for the coming year. If you have questions about your personal financial planning or need help finding someone to assist you, contact your CPA. To find a CPA in Pennsylvania by location or area of expertise, visit the CPA Locator.
The article has been updated since it's original publication date of Dec. 3, 2015, and again since the republication date of Nov. 18, 2016.