Taxes can affect many areas of your life. Here are some common situations when you'll want to schedule a tax review.
1. Something changed in your life. A change in your life could mean significant changes in your tax status. Some of these changes include:
Getting married or divorced
A child starting college or an adult going back to school
Moving to a new home
The birth of a child or an adoption
A family member passes away
How your taxes may be different: Tax deductions and credits can increase and decrease because of these and other life changes. You'll want to know as soon as possible if your taxes will be going up so you can be prepared to pay the increased amount.
2. A new job. You'll have several decisions to make when starting a new job that will affect your tax situation:
Retirement savings plans - Learn about the available retirement savings plans offered by the employer and any other tax-deferred savings options. Remember that some employers will match a certain percentage of contributions that an employee makes to a plan.
Medical savings accounts - Your employer may offer a Flexible Spending Account or a Health Savings Account to help with paying certain medical expenses with pre-tax funds.
Withholding - You'll need to determine if you want additional federal (along with state and local income taxes if applicable) income taxes withheld from your paycheck beyond what your employer is obligated to withhold.
How your taxes may be different: You can decrease your taxable income by contributing to qualified retirement and medical savings plans. A tax planning session can reveal how much you can contribute to each of these plans, and if you should consider adjusting your paycheck withholdings.
3. A new business or side hustle. A new business (hopefully!) means more money, but also more tax responsibilities. Here are some things to consider:
Separate accounts and credit cards - If you only remember one tip, it's to keep separate accounts. Without this, it is easy for the IRS to deem expenses as personal and, therefore, not deductible.
Paying estimated taxes - As a business owner, you are responsible for making tax payments throughout the year to the IRS if your business is profitable.
Setting up a bookkeeping system - Having an accurate bookkeeping system is vital to making sure you don't pay any more in taxes than you're legally obligated to pay. Consider reconciling your bank accounts weekly (or even daily if possible) so they're always current.
Other tax responsibilities - You may be required to submit a sales tax return depending on what types of products you sell or services you provide. You'll also be required to submit various payroll tax returns if you have any employees.
How your taxes may be different: Most small businesses are flow through entities. This means any business profits will add to your personal income. Because of this, your personal tax situation could vary dramatically! So tax planning becomes critical on two fronts: Your new taxable income level AND helping you stay in compliance at the federal, state and local business tax rules.
Nobody likes a tax surprise and now is a great time to schedule a tax planning review.