Why wait until tax season to prepare for your upcoming tax filing requirements? Taking some proactive steps before tax season is in full swing can help alleviate stress for both you and your CPA when it comes time to prepare your returns.
Without an up-to-date, workable and effective financial plan, you and your family could be at a higher risk of financial instability and uncertainty. While tax planning is only one component of your overall financial plan, it is an essential one. If you have experienced any life changes or decided that your goals have changed during the year, we want to know. Let’s work together to modify an existing or create a new financial plan and tax strategy that best reflects where you are and where you want to be.
Hopefully, you are on track to make your charitable giving goals for the year. Be mindful to maintain a file containing the charitable acknowledgments you have received for your charitable gifts of $250 or more. The IRS can and does disallow charitable contributions of $250 or more that are not substantiated with a written acknowledgment from the recipient charity.[1] Gifts of less than $250 must be substantiated with bank records or a receipt or letter from the charity. Other rules apply to noncash gifts.
Work with your advisor to ensure that all of your RMDs, if applicable, have been satisfied by year-end to avoid hefty penalties and interest. In addition, be sure to manage the timing of state and local tax payments, keeping in mind the $10,000 limitation on deducting state and local taxes (SALT) for U.S. income taxes. Ask your advisor to create or arrange for a tax plan to assess whether your income tax withholding or estimated payments are on track for year-end. A tax projection in the closing months of the calendar year can be a great springboard for other important discussions with your financial advisor.
The period of limitations is the time frame during which you can amend your tax return to request a credit or refund, or the IRS can assess additional taxes. The time period is three years in most cases but can be five, seven or even 10 years in some limited situations.[1] We recommend keeping tax returns indefinitely and the documentation to substantiate the income and expenses claimed on returns for seven years post-filing date.
A little preparation ahead of time can help make a world of difference when tax season comes around. As always, your Modera team is here to help. Be in touch if you have questions about your tax strategy or overall financial plan as you head into tax season.
[1] https://www.irs.gov/businesses/small-businesses-self-employed/how-long-should-i-keep-records#:~:text=Period%20of%20limitations%20that%20apply%20to%20income%20tax%20returns&text=Keep%20records%20for%203%20years%20from%20the%20date%20you%20filed,after%20you%20file%20your%20return.
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