LETTERS From CAMP Rehoboth |
CAMP Finance |
by Fred Dean Jr. |
Plan Now, Avoid High Taxes Later
National Association of Tax Professionals (NATP) Appleton, WI What is more exasperating than having to pay taxes? Understanding the constantly changing legislation affecting them! Yet, not fully understanding regulations and how provisions work together costs taxpayers significantly every year. A mid-year tax review with an expert will help you. Here is why. Following are some common areas fraught with complex rules that cause taxpayers to miss valuable opportunities to leverage their options and lower their tax bills. Financial advisors and tax preparers are experts in these areas so you don't need to be. Overpayment or underpayment of taxes. Did you receive a big refund last year? If so, you overpaid and the government kept your money as a tax-free loan while you could have invested it and earned interest. Did you owe? Worse, were you stuck paying Alternative Minimum Tax? A mid-year review will help determine where you are and allow you to adjust your withholding now to avoid penalties later. Saving for retirement IRAs, 401(k)s, profit-sharing, pensions, employer-sponsored plans, etc. Many changes have taken place in the last few years regarding retirement savings plans. The plan you originally began with may have been advantageous when you started it, but it might not be anymore. So much has changed with these plans that it's important to review them to see if they are still performing as you intended, and to find out if there are new products available that you are not taking advantage of. Estimated tax payments. Adjusting these payments now will avoid underpayment penalties at year-end. Take advantage of deduction bunching. Some itemized deductions must meet certain thresholds before you can claim them. By being aware of these and managing your expenditures to fall primarily in one year, rather than spread over two years, you may realize significant tax savings. This applies to several expenditures, especially to medical expenses, property tax payments, and charitable donations. Getting married? Or divorced? These life-changing events have very significant tax implications. A divorce or change in child custody arrangements can mean tax implications in several areas. Attempting to reach a divorce settlement or filing taxes without expert financial advice will most likely not be to your advantage. Buying or selling stocks, bonds, real estate, or other investments. Many tax rules apply to all of these transactions. For example, a real estate like-kind exchange may work to your advantage. If you're selling a residence, perhaps the exclusion for selling a principal residence applies to you. There are capital gains and losses, wash sale rules, long-term gains and losses, and a whole array of other rules when it comes to stocks and bonds. Handle these transactions wisely. Self-employed taxpayers and those with small businesses have many ways to plan for tax savings. This is another area where tax preparers prove their value. Several changes in recent years allow flexibility with carrybacks, carryforwards, employee benefit plans, expense deductions, etc. Timing of purchases and assets can make big differences on your tax return, and some of these things need to take place before year-end to qualify. The result of the calculated tax burden on your annual income tax return is not due to a few transactions, but is instead the result of how you've planned, invested, and leveraged your financial dealings throughout the year. Call now for that mid-year review. Frederick Dean Jr. is a Certified Retirement Planning Counselor (CRPC)*, Financial Advisor and a member of the National Association of Tax Professionals and Financial Planning Assoc. Email dean@restylement.com or call 302-236-6700. |
LETTERS From CAMP Rehoboth, Vol. 18, No. 12 August 22, 2008 |