The importance of year-round tax planning
The importance of year-round tax planning
You did it! You successfully turned in your tax return by this year's deadline. That means there's no need to think about taxes for another year, right? In fact, the Michigan Association of CPAs advises that there are many smart and easy steps you can take now that will potentially improve your financial situation today and at tax time next year.
Turn to the Return
Although you may be happy to be done with it, the tax return you just completed contains a wealth of clues about your financial situation and opportunities to make it better. Your CPA can help you make sense of what it has to say, but it's a good idea to review it thoroughly before speaking with a CPA, so you're well versed on the facts.
Providing for College Education
At the beginning of your return you are asked to list your dependents. If you have children and college education costs are an issue, there are a number of tax benefits you may be able to use, such as the American Opportunity Credit, which allows qualified taxpayers to reduce their taxes by as much as $2,500 a year. If you're saving for future tuition expenses, a Section 529 plan investment account allows your savings to grow tax-free and distributions from the account are tax-freeto the beneficiaryto the extent they are used to pay qualified college costs. If you're not making the most of some of the many chances to minimize your family's education expenses, it could be costing you money.
Reviewing Deductions
Your tax return's Schedule A lists the deductions you took last year. Taxpayers who are subject to the alternative minimum tax (AMT) may lose the benefit of some of their deductions. If that's the case, it may be a good idea to accelerate or delay some income or deductions wherever possible to avoid triggering the AMT. Your CPA can help you understand how to decide.
If you own a home and your return shows a large deduction for home mortgage interest, it may be advisable to consider refinancing to get a lower interest rate. While deductions are always welcome, it's better to lower your financing costs and keep that interest money in your own pocket.
Regarding Retirement
If you haven't been making contributions to a tax-advantaged retirement plan, then you're missing a great opportunity to get ahead. With a 401(k), 403(b) or other employer-sponsored plan, you can contribute pre-tax earnings that can grow tax free over time. Those who don't have access to such plans may be able to take a deduction for their contributions to individual retirement accounts (IRAs), simplified employee pensions (SEPs) or other similar plans. In addition to the tax benefits, saving slowly for retirement over time is simply a smart way to ensure that there will be a nice nest egg waiting for you later. Even if you can't make the maximum contribution, CPAs advise putting away as much as possible toward retirement because of the many benefits involved.
Estate Planning OptionsThere have been many changes in the laws governing estate taxes in recent years, which means it can be hard to predict who will be subject to them down the road. Proper estate planning can help lower estate taxes and accomplish a range of other goals. Your CPA can offer more details on the best ways to provide for your family's future.
Your CPA Can HelpNow that tax season's over, it's a good idea to ask your CPA about unexplored opportunities to enhance your family's financial situation. Remember that your CPA has broad and deep financial knowledge and can provide advice on a wide range of issues.
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