Getty
July 15, 2020, marked the end of tax season for those taxpayers not on extension.
The revised due date made for an interesting tax season, for sure, but even so, some things are universal – and that includes tax advice. I asked some of the best tax folks I know to share their top tax tips. Here are a few of the best to consider as you gear up for next tax season… It’s just five months away!
Working With Professionals
Don’t work in a silo – build your team. It saves time, money, and sometimes, a business.
– Deborah A. Fox, CPA
Gather all of your info and send in one email/package to your CPA. Sending in piece-meal information only drives up the tax prep bill because the preparer has to spend time consolidating all work papers sent in.
Prepare a summary sheet that outlines all work papers being sent, this way you are both on the same page as far as what has been sent in.
– Jennifer Grammer, CPA – Tax Manager at Whitley Penn, LLP
My best tax tip is to use tax planning with your professional to minimize your tax refund so you can keep the money and earn some interest on it instead of the government (you get the float on the money instead of them.)
– Brian T. Stoner, CPA
My best tax tip is to look at the documents you provided your tax preparer last year, and if anything has changed, let the preparer know.
– Cheryl Brown Biondolillo, CPA
Don’t be afraid of paying for an hour or two of a CPAs time. Hourly rates can range anywhere from $150-250 per hour or more, but that one hour can help you save 10-25 times in tax payments as a W2 or even a sole prop.
– Eric Pierre, CPA, Owner and Principal of Pierre Accounting in Austin, Texas and San Diego, California
Develop a good relationship with your tax pro, communicate often, and reach out BEFORE you act. Tax planning is pro-active, not reactive.
Do not underestimate the power of good bookkeeping and quality records. Sloppy bookkeeping often leads to missed deductions.
- Karen Orlando, EA, FactFinder Accounting & Tax Services, LLC
Don’t wait until the last minute to ask for help! Oftentimes, clients might think they will make time to do their bookkeeping, find their documents, look for tax advice on a complex item, or whatever the situation might be. These issues get pushed off due to our busy lives. Seek help on the front end! It will likely save a huge headache for the client as well as the tax advisor, as well as in a lot of cases, penalties, and interest from delaying tax payments due to unexpected tax liabilities. As we have seen with the COVID pandemic, we never know what will happen!
Utilize a tax advisor. Yes, there is a lot of free software out there, and historically someone who has a simple W-2 doesn’t always need the extra cost of paying for tax preparation. However, as we are seeing more in recent years from TCJA, CARES, etc., it is worth the fee to build a relationship with a trusted tax advisor to give peace of mind by keeps up with the continuous changes, answering questions, how to get stimulus checks, seeking out business loans, and other referrals and planning opportunities.
– Tiffany Huntington, EA – Tax Advisor at Purely Solutions
Tell your preparer about life events as they happen, not the following year at tax time. Let us celebrate – and tax plan – events like babies, marriage, boats, side hustles, stock windfalls, and divorce in the year they occur!
– Brad Garland, CPA at Brand Blackwell
Organization
One bank account for business, one bank account for personal!
– Arianna Carrington, CAA
Accounting/Financial records need to be kept current to determine if Estimated Tax Payments are required for Income Tax and Self-Employment Tax.
– Deborah A. Fox, CPA
Utilize technology, apps, and solutions to keep your data organized and easily accessible. Again, this saves you a huge headache and your tax preparer when crunch time comes. Oftentimes, clients will forget about income and deductions from the prior year by the time the filing comes. With streamlined accounting, mileage, or receipt tracking solutions, everything is recorded and accessible for tax time as well as stored for due diligence purposes.
– Tiffany Huntington, EA – Tax Advisor at Purely Solutions
Tax Education
Getting the biggest refund shouldn’t be your goal when filing your individual tax return
Be careful of what you read on the internet – if it sounds too good to be true, it probably is
Use the IRS website! It’s easy to navigate and approachable to those that don’t read to the Internal Revenue Code for a living.
– Damien R. Martin, CPA, Partner | BKD
Don’t take tax advice from friends, family, or co-workers unless they are tax practitioners (i.e., Enrolled Agent (EA), Certified Public Accountant (CPA), or Tax Attorney).
– Salvador Campos. Jr., Enrolled Agent at Campos Enterprises
Sign up for a couple tax pros’ newsletters. Use Google to find a local CPA/tax pro that’s highly rated and join their monthly newsletter. This will get you a lot of good info, particularly if you’re cash strapped, but still want access to good tax information.
– Eric Pierre, CPA, Owner and Principal of Pierre Accounting in Austin, Texas and San Diego, California
(Note from Kelly: Great idea! You can sign up for my newsletter here.)
Tax Minimization & Planning
One of my best tax tips for older high-income taxpayers is to make a Qualified Charitable Deduction (QCD) from their IRA. Most have paid off their mortgage and have their state tax deduction limited to $10K. They often aren’t getting benefit from their charitable deduction otherwise. It is also a useful tool for older taxpayers who are trying to manage their AGI to stay below a threshold for higher medicare premiums.
– Chris Holland, Certified Public Accountant
Pay any investment advisor fees attributable to retirement assets with pre-tax retirement funds. This is especially beneficial now that advisor fees are no longer deductible. This allows the taxpayer to pay fees with funds that were never taxed as well as potentially reduce IRA balances on which future Required Minimum Distributions are calculated on.
– Samantha Anderson, CFP®, Wealth Manager at Budros, Ruhlin & Roe in Columbus Ohio
Reevaluate your withholding and your W4 every quarter to avoid a surprise tax bill or refund. Large refunds we find are taking longer to process by the IRS this year.
– Eric Pierre, CPA, Owner and Principal of Pierre Accounting in Austin, Texas and San Diego, California
Charitably-minded taxpayers who don’t have enough to itemize (or just barely itemize): fund a donor-advised fund every other year to alternate taking the standard deduction and itemizing your deductions. Just make sure to empty out your donor-advised fund reasonably soon after funding to get those dollars actually working in a nonprofit you are passionate about (rather than sitting around building up earnings unused to “some day” do some good in the world).
– Karl Strube, CPA, owner of Karl J. Strube, CPA
Do an extension in order to give yourself more time to fund a SEP-IRA contribution. You might not have the money until later in the year to fund a prior year contribution, but the government gives you six more months to do it just by filing an extension. This allows you (in normal years) to fund a SEP-IRA for the prior year as late as October 15 of the next year.
– Ryan Ellis, EA
With federal tax rates at all-time lows…it might be a good time to convert some of your taxable IRA funds to Roth IRAs.
Do some proactive tax planning to save more money for your retirement.
– Kathleen Orlando CPA, Palos Heights IL
Convert your IRA to a ROTH IRA: If lower earnings in 2020 drop you to a lower tax bracket, or you are concerned rates may increase significantly in the future, consider converting your traditional IRA into a ROTH IRA. While a taxpayer will pay tax on the amount of the IRA rolled over, future growth inside the ROTH IRA and withdrawals will be tax-free.
Consider bunching charitable contributions if you’re no longer allowed to itemize deductions: By using a donor-advised fund (DAF), a taxpayer can donate 5 years’ worth of donations into their DAF in 2020. This will increase their itemized deduction, potentially allowing the taxpayer to exceed the standard deduction amount in 2020 and then rely on the increased standard deduction in the following years.
– Brad Sprong, KPMG partner and head of Private Enterprises
For young workers, devise a plan with your parents to match your Roth Contribution. Example: my 16 y/o daughter made $600 on W-2 working at the YMCA. She has earned income. She is eligible for a ROTH IRA. I used $300 of her money and matched it with $300 of mine. Time has the greatest return on investment, and they can learn about saving money. Promotes good habits!
– Mark Burch, Enrolled Agent, Lincoln NE
Taxes & IRS
File as soon as possible, even if you take advantage of the extension. Many taxpayers don’t realize that the extension to file isn’t an extension for payment and think it doesn’t matter whether they file the day after the deadline or the last day of the extension, but can avoid interest and penalties if they opt to follow earlier rather than later.
– Keila Hill-Trawick, CPA, MBA
When mailing a tax return to the IRS, even if you send it Registered Mail, Certified Mail, or Priority Mail with a delivery receipt, always include a small check. Say $2.02. Since the checks are made out to the Treasury Department, there is a separate set of internal controls regarding the receipt of payments. The check will be logged in separately from the return, recorded, cashed and deposited. On the copy of the check will be the information needed to prove the return was received by the IRS. There is a document locator number. A few times, a return sent by the above methods has not been recorded. The saving grace was the proof available on the cashed check. Sometimes, the IRS will eventually return the overpayment, sometimes with interest.
– Patrick P. Murphy, Enrolled Agent