Many individuals may think the time to plan for tax season occurs during the tax season, which occurs after their tax year has ended.
Unfortunately, this is often too late to make any adjustments, which may have benefited the taxpayer.
Similarly, businesses can also fall into this line of thinking and fail to plan for tax season during their tax year.
No matter the time of the year, individuals and businesses should always be planning for the upcoming tax season, so they can make decisions timely to minimize taxes and plan for cashflow needs.
Just like a person’s income and expenses, tax laws are not static and can provide a variety of differences from year-to-year. Additionally, a change in the amount of income, even slightly, may trigger different components of a tax law to come into play on your return.
Zinner & Co. Partner Brett Neate, CPA, M.Tax, recommends individuals regularly communicate with their advisors regarding any change of income and how it could impact their tax return.
“Communicating proactively and openly with your advisor allows them to advise you on how best to plan around the various income thresholds to minimize your taxes,” said Neate.
Throughout regular communications, any significant life event should be discussed with your advisor. Such changes can include, but are not limited to:
- Birth of a child
- A child going to college
- Death of a family member
- Moving into a new home
- Change in employment
- A new business venture
- Change in marital status
- Change in dependents
Neate urges people to trust their advisor to determine what, if any, tax implications exist related to significant life events. In addition, their advisor may be able to provide guidance on important non-tax matters they should also consider related to these events.
He urges business owners to speak regularly with their advisors as well.
“If you are contemplating a significant change in how your business operates, you need to communicate with your accounting and tax advisors before taking any action,” said Neate. “There is often more than one way to implement changes in your business and some of them may have significant implications to your financial statements or taxes.”
For example, many tax incentives exist for expanding a business and/or creating new jobs, but they may not be available unless certain protocols are followed during implementation.
Similarly, loan covenants need to be considered and addressed with lenders if a change in operations could lead to a covenant violation.
The key though is communication.
Something as simple as an email can keep your advisor up-to-date on your situation.
However, while an email can be simple, a phone call can be far more productive because it allows your advisor to ask important follow-up questions.
“Email your advisor to lay out the facts and then follow-up with a phone call to discuss the items,” said Neate. “A phone conversation can lead to other facets, which may not otherwise be considered.”