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Tax Planning and Preparation

Tax Planning

Tax reduction planning is something that can be done throughout the year. When you walk into your tax preparer’s office in February or March to have your taxes done, it’s usually too late to do much of the tax planning that can be done to save taxes. Post Resch Tallon Group’s professional at NFS Tax Prep, Inc. in Webster can help you determine when to take profits and losses, shift income and deductions to the appropriate tax year, decide on Roth IRA conversions to help you maximize retirement plan benefits and reduce the taxability of social security income. These are just some of the issues that can be addressed to help you meet all your financial needs.

Things You Can Do to Prepare for the Upcoming Tax Season

  • Check Your Withholdings

If you’ve had a big refund before, you should consider lowering your income tax withholdings if your income and deductions will remain similar in the next year. Alternately, if you’ve owed a substantial amount in your previous filings, you may want to consider increasing your tax withholdings to try and lessen your tax burden due April 15.

  • Examine Your Information

It’s always a good time to meet with your tax preparer – waiting until February could increase stress when you’re getting ready to file your return. Get together, look at your tax situation, and start planning now.

  • Get Your Books or Financials in Order

If you’re doing anything beyond working, it’s time to start getting everything in order so that you aren’t rushing at the beginning of the new year. If you have a small business or rental properties, get prepared to issue 1099s or prepare other forms you’ll need to complete your taxes.

  • Set Aside Receipts

Don’t wait until the end of the year to start thinking about deductions – be smart and start pulling together the records immediately so they are close at hand come tax time.

  • Clear the Clutter

Now’s a great time to clear the clutter as the days fall shorter. Consider gathering your old clothing and household items and donating them to a reputable charitable organization. Be sure to get a receipt for your donation. When you prepare your taxes, we’ll apply a “fair market value” to that donation. Your generosity may be worth $25 to $35 in tax savings for every $100 value of the items you donate.


To harvest or not to harvest

Evaluate whether you could benefit from tax-loss harvesting – selling a losing investment to offset gains. The first $3,000 (single or married filing jointly) offsets ordinary income. Excess losses also can be carried forward to future years. With your advisor, examine the following subtleties when aiming to decrease your tax bill:

  • Short-term gains are taxed at a higher marginal rate; aim to reduce those first.
  • Don’t disrupt your long-term investment strategy when harvesting losses.
  • Be aware of “wash sale” rules that affect new purchases before and after the sale of a security. If you sell a security at a loss but purchase another “substantially identical” security – within 30 days before or after the sale date – the IRS likely will consider that a wash sale and disallow the loss deduction. The IRS will look at all your accounts – 401(k), IRA, etc. – when determining if a wash sale occurred.

Manage your income and deductions

Those at or near the next tax bracket should pay close attention to anything that might bump them up and plan to reduce taxable income before the end of the year.

  • Determine if it makes sense to accelerate deductions or defer income, potentially allowing you to minimize your current tax liability. Some companies may give you an opportunity to defer bonuses and so forth into a future year as well.
  • Certain retirement plans also can help you defer taxes. Contributing to a traditional 401(k) allows you to pay income tax only when you withdraw money from the plan in the future, at which point your income and tax rate may be lower or you may have more deductions available to offset the income.*
  • Evaluate your income sources – earned income, corporate bonds, municipal bonds, qualified dividends, etc. – to help reduce the overall tax impact.


When can I file my taxes?

The IRS announced last year it will begin accepting and processing federal tax returns starting Jan. 27.

You can begin working on your returns as soon as you’d like, whether you are partnering with a tax preparer or doing it yourself with tax software. However, the IRS won’t review and process your return until the official start date.

What do I need to bring to my tax preparer?

If you’re working with a tax preparer, they will need some key documentation. First, they will require proof of your identity. If they are preparing taxes on behalf of your business, you need to provide your Employer Identification Number, also known as a tax ID.

The tax preparer will also need to understand your finances. This includes income from gross receipts from sales or services, sales records, returns, business bank account interest, and other income. It also includes the cost of goods sold such as your inventory, the total dollar amount of beginning inventory, the ending dollar amount of inventory, items removed for personal reasons, and needed materials and supplies. A tax preparer will also require your business expenses, which could qualify you for certain deductions and credits that reduce your overall tax liability.


Itemize business expenses.

Having expenses detailed, itemized, and categorized is another way you can greatly save time and hassle before tax day.

Working closely with the bookkeeping and accounting teams (if your business is large enough) or with outside help will please your tax expert and put you in a position to claim the maximum benefit from your expenses.

The IRS also offers a business expenses explainer that details the type of expenses that can be claimed.

Keep up with your home state’s tax issues.

Some states take out loans from the federal government to meet unemployment benefits liabilities. Ayyad noted that if your state has taken, but not repaid those loans, there will be a reduction in the credit against the Federal Unemployment Tax Act tax rate. This means employers in those states have to pay more. A number of states may be affected, including Arizona, Arkansas, California, Connecticut, Delaware, Indiana, Kentucky, New York, North Carolina, Ohio, Rhode Island and South Carolina, as well as the U.S. Virgin Islands.

Most tax professionals will prepare your state return in addition to the federal return. The key, however, is that complexities and changes in state requirements should receive the same type of attention as IRS rules.


4 Things You Should Know Before Hiring Someone To Do Your Taxes

Hiring someone to complete your tax return is like hiring a mechanic to fix your car or a real-estate agent to help you buy a home. While it can take a significant amount of stress out of a complex job, it doesn’t necessarily prevent all problems or absolve you when problems occur.

Fifty-four percent of Americans said they believe the tax preparer has to defend any return they’ve prepared to the IRS in the case of an audit. But in reality, it’s you who is on the hook for defending your tax return and paying any additional taxes if your tax professional makes mistakes.

Here are four crucial facts to get you started in the right direction.

  1. Not all tax preparers are the same

The tax preparer you’ll find at a pop-up location during tax season may not have the same credentials as the accountant you visit at their own office. Anyone who prepares federal tax returns for payment must have a preparer tax identification number (PTIN). But some — such as certified public accountants, licensed attorneys and enrolled agents — have undergone additional certification requirements, education and/or training. You can ask them for their credentials or look them up in the IRS directory of tax preparers.

Membership in professional organizations such as the National Association of Tax Professionals or the National Association of Enrolled Agents can also indicate additional training, certifications and adherence to codes of ethics.

  1. Tax preparers make mistakes, too

Almost half (45%) of Americans who have used a tax preparer in the past five years say they just glance at their return before filing it and “generally trust” their preparer won’t make mistakes, according to the survey. Another 16% sign their return without reviewing it at all.

It’s understandable — you’re paying for a service and errors are unacceptable. But tax preparers are human, and mistakes happen.

Always review your tax return before signing and submitting it. At the very least, check your name, Social Security number, address and bank account numbers. Also, give the final outcome — whether a refund or tax bill — a gut check. If it’s far off from what you expected, ask questions. Changes in tax laws and changes in your financial life can dramatically affect the outcome of your tax return from one year to the next, but if something catches your eye, ask your preparer for an explanation.

  1. If your tax preparer makes an error, you’re on the hook

Identifying mistakes in your return before you file can save you from headaches with the IRS later. More than one-third (36%) of Americans mistakenly believe tax preparers are responsible for any additional tax payments owed to the IRS if an error is found in a return they’ve prepared, according to the survey.

The IRS will contact you, not your tax preparer, if there is a problem with your return. But a reputable tax preparer may help you figure out how to handle the next steps in resolving the issue. If you signed a contract with your tax preparer (also known as an engagement letter), it likely includes how preparer mistakes will be handled. While some tax preparers may offer to cover fees or submit an amended return if the mistake was theirs, the taxpayer — that’s you — is the only one responsible for any additional taxes.

  1. In the event of an audit, the IRS looks to you

The likelihood of an audit is pretty slim — in 2018, the IRS audited just 0.6% of individual returns and in 2019, only 0.45%. But similar to the IRS finding a mistake in your return, if they decide to audit you, it’s you they’ll contact, not your tax preparer.

In addition to the more than half (54%) of Americans who believe tax preparers are responsible for defending a return to the IRS in the event of an audit, 25% of Americans weren’t sure who would need to defend the return. Just 21% of Americans correctly indicated that the preparer would not necessarily have to defend the return.

While you can hire a tax attorney or preparer to speak on your behalf to the IRS during an audit, paying for them to complete your taxes doesn’t automatically include audit defense. If you’re unsure, ask so you know where you stand on the rare chance that your file is flagged.