Summer Tax Checklist
Written By: David Amiss, CPA, CVA
Carr, Riggs & Ingram, CPAs and Advisors
New Year’s Resolutions and Spring Cleaning are initiatives that focus on motivating individuals to address a perceived need. Accordingly, the aim of this article is twofold. First, to convince you of the perceived need of giving your taxes adequate attention on the eve of summer; and second, to give you a list of things to consider and do related to taxes.
New Year’s Resolutions and Spring Cleaning are initiatives that focus on motivating individuals to address a perceived need. Accordingly, the aim of this article is twofold. First, to convince you of the perceived need of giving your taxes adequate attention on the eve of summer; and second, to give you a list of things to consider and do related to taxes.
Visit any of your local CPA’s office and the examples would be replete of clients engaging in a significant transaction and informing their CPA subsequent to executing the transaction. ‘If only we would have talked to you before’ or some variation thereof is what typically ensues after the first of the year when the client comes in to drop off their tax information. The resulting conversation reveals that the CPA could’ve saved their client significant amounts of cash had they been informed of the transaction prior to its execution.
That example may sound a bit dramatic. However, that which is true with significant amounts of cash is also true with lesser amounts of cash. Further, the benefits to engaging your CPA at multiple times of the year, as well as, prior to major decisions have other benefits as well, just as visiting your doctor and dentist does.
With that said, and hopefully the importance thereof established, what are some things to consider on the eve of summer? First things first, finalize your 2015 tax return. For those that have requested an extension of time to file their tax returns, acquire the necessary data to complete the tax return and provide it to your CPA. For the most part, you know now what it will take to finalize your tax return. Move quickly to complete it. Completing the tax return now has several benefits, including but not limited to allowing you to move forward to focus on a year you can plan for and assessing your 2015 tax return which brings us to the next ‘to do’.
As with most anything, a prudent response to your 2015 tax return is to evaluate it. What went well? What didn’t go well? Did your return match your expectations? Did your return match your plan and or, if applicable, your projection? Did you learn anything about your tax return? Were you made aware of opportunities moving forward? Are you confident in the competence and care that you’ve received from your CPA? These questions are a good start towards evaluating your 2015 tax return in hopes of making improvements for 2016, which leads to our next task.
Once you’ve tied a bow on the 2015 tax return it’s time to turn our attention to 2016 and beyond. Some of the leg work should have already been completed with our evaluation of the 2015 tax return. For those run of the mill components to your return such as wages, interest, dividends and other annual recurring revenue, are you satisfied with your payment of estimated taxes and subsequent liability or refund? Are your withholding and/or estimated taxes adequate for your tax liability? Do you typically owe tax or receive a refund when you file a return? Are you satisfied with those results? Are you aware that you potentially could be subject to penalties on the underpayment of estimated taxes? Further, are you aware that if you don’t pay your total tax liabilities by the due date in April you will be subject to additional penalties and interest? Now, to be sure, some individuals are aware of and content to pay penalties and interest as a result of paying their taxes later. This is due to the fact that they have the ability to use the cash now in such a way as to derive a return greater than the penalties and interest creates. If this matches your prerogative, that is certainly fine. The aim of this article however, is awareness to those facts to enable proactive planning and reducing surprises.
Another strategy is to give consideration to future transactions that you can begin planning for now. Thinking of the pieces to the puzzle now will have a direct impact on your future cash flow. There are numerous tax strategies that can be employed to minimize tax liabilities. Further, potential transactions can be structured in such a way to further reduce liabilities.
This time of the year is also a good time to make adjustments to wage withholding in order to avoid underpayments or excess refunds. Additionally, the June 15th due date for second quarter estimated tax payments is fast approaching. Be sure to pay in an appropriate amount by this date. Furthermore, if you’ve extended your tax return you may need to double up and pay for first and second quarter estimated tax payments to avoid estimated tax penalties.
Lastly, consider making aware and introducing the various professionals you work with, such as attorney, CPA, financial planner, etc. with one another. These are the trusted individuals in your lives that are charged with caring for you and your posterity to various degrees. It’s helpful for these professionals to know one another in order that they may act with prudence and efficiency when called upon.
I hope that this article has illuminated the need to be engaged in your tax situation on the eve of summer, as well as throughout the year. Additionally, that there are some specific tasks that you can address in the here and now. Finally, that in doing so you’ll receive multiple benefits which will be the proverbial ‘proof in the pudding’ of this call to action.