Fall in the Midwest is a great time of year; a chill is in the air, children are back in school, and autumn colors set the trees afire. This season has always been a happy time for me as a child, and I always look forward to my favorite holiday, Halloween, which brings back cherished memories of parading around as a hyperglycemic child, high on “fun-sized” candy, dressed as my favorite superhero. As an adult, I can still feel the nostalgia, but there is something even spookier than a Hocus Pocus marathon – tax planning! If that sends a chill down your spine, grab something with pumpkin spice and read these Fall Tax Tips. You just might be able to avoid a nightmare before Christmas.
Compare Your Income To Last Year
A helpful tool for tax planning is your tax return from last year. It will show you what income was reported from your job, your business, your investment portfolio, your rental that you maintain on the side, etc. Take each area of income into consideration and compare it to your projected income for the current year. You should be able to get a good indication of whether or not your income is up or down overall. Fall is a great time for an income projection because enough of the year has gone by to get good data, and, if there are any big differences, there is still enough time to do something about it before year-end.
Adjust Your Withholding Or Estimated Tax Payments
It pays to manage your tax liability in your favor. If your income is substantially different when compared to last year, then it might be time to make an appointment with your CPA. They can help you calculate your projected tax liability and see if you are over or underpaid. If you are underpaid for the year, then you may need to make an additional tax payment and avoid underpayment penalties. If you are overpaid, then your CPA can let you know and possibly adjust your tax payments down and improve your cash flow by making sure that you aren’t out of pocket until your tax refund comes in. Adjustments can be made by adjusting the taxes withheld on your paycheck or by using a payment voucher to make an estimated tax payment.
Invest In Your Business
Now that you have a better idea of your income, tax liability, and cash flow, it might make sense to move forward with that remodel or piece of equipment that you have been considering to expand or streamline your business. Investments in your business often come with attractive tax incentives and deductions, but be aware: the tax treatment for deducting and trading equipment and other assets has changed significantly since the Tax Cuts and Jobs Act of 2018, so it would be wise to discuss big investments with your CPA ahead of time. Informed decisions about significant purchases can make all the difference on your tax return and your business – it’s a win-win!
Invest In Your Future
Planning for the near term shouldn’t stop you from saving for retirement, health, and other important areas of your life. Don’t forget about contributions to a traditional IRA, Health Savings Account (HSA), employer 401(k), or self-employed SEP retirement savings accounts. These accounts all have one thing in common in that income funneled to these accounts is tax deferred. You can make a contribution to any or all of these accounts, depending on your situation, and smooth out your income from year to year for tax purposes – all while saving for your future!
The trick to making tax planning a treat is to talk to your advisor. Start doing a little planning now and avoid a big surprise when your tax return is filed this tax season.